Diamond Foods Announces Temporary Loan Forbearance As Vultures Begin Circling

Update: to the robot who bought at $28.29 on the WSJ headline seconds before close, congrats. Stock now down 4% from close.

That Diamond Foods is a dead man walking has been known for a while. Today we merely got the latest confirmation, after the company announced that it has reached a forbearance deal with its lender through June 18, in exchange for suspending dividends (duh) as well as a one time 25 bps loan fee, and an interest increase by 75 bps until June 18. At that point the company will still have to find a replacement facility, or do another forebearance deal which extracts even more equity value and hands it on a silver platter to secured creditors... kinda like Greece. Curiously, moments before close the market reacted like a stung HFT algo (see chart below) to a headline from the WSJ that "Diamond Foods in Talks With PE for Minority Investment." Sure it is - the problem is that any minority investment at this point will likely come below market, as this is not an M&A deal but a vulture equity financing. In fact, we would not be surprised if the lenders are contemplated a debt for equity exchange. However, for it to make sense, the stock would have to be far lower. Anyway, the stock reopens at 5:15pm. Stay tuned.

From DMND:

(Nasdaq:DMND) ("Diamond") today announced the Company has reached an agreement with its lenders to amend its credit agreement. Under the amended agreement ("amendment"), Diamond, working with its current bank group, will have continued access to its existing revolving credit facility through June 18, 2012 subject to Diamond's compliance with the terms and conditions of the amendment.   During this period, Diamond will continue to make scheduled term loan payments. Also, Diamond continues to make progress with its restatement and is pursuing actions with its financial advisor, Dean Bradley Osborne, to explore capital alternatives to strengthen the Company's balance sheet.


"I am pleased to have reached this agreement with our lender group," said Rick Wolford, Diamond's Interim President and Chief Executive Officer."This agreement enables Diamond to continue to work through our restatement process and with our financial advisor to develop capital alternatives to strengthen Diamond's balance sheet and reduce leverage. Also, during this period, Diamond will continue working to rebuild our walnut grower relationships, to take steps required to ensure Diamond's competitiveness and ongoing success in the walnut industry and, importantly, to continue to successfully support the growth of our snack brands."


The amendment requires Diamond to suspend dividend payments to stockholders. The interest rate on borrowings under the facility will increase by 75 basis points. In addition, Diamond has agreed to pay a one-time forbearance fee of 25 basis points to its lenders.