Diamond said it would use the investment to grow its snack business, reduce debt and strengthen its position in the walnut industry. The Oaktree investment gives the firm two seats on Diamond’s board, and allows the Kettle Chips and Emerald Nuts maker to amend its credit agreement with lenders, providing it with extra liquidity.
The investment includes warrants for about 4.4m shares with an exercise price of $10 each – equivalent to about 16.4% of the company – and newly issued senior notes at a 12% per annum interest rate, which could be paid-in-kind at Diamond's option for the first two years.
If Diamond secures a minimum supply of walnuts from this year's crop and achieves profit targets for its nut businesses for the six months ending January 31, all of the warrants would be canceled and Oaktree could exchange $75m of the senior notes to convertible preferred shares. The initial conversion rate is $20.75 a share.
Last year, Diamond saw its shares plummet after improper accounting was revealed in its walnut business. After a three-month investigation, an audit committee found that $80m of payments to growers were unaccounted for, leading the company to remove its CEO Michael Mendes and CFO Steven Neil.
The accounting scandal was also cited as a reason for the collapse of Diamond’s $2.35bn bid for Pringles, which was snapped up by The Kellogg Company instead.
Brian Driscoll, Diamond Foods' recently appointed president and CEO said: "We are pleased with the progress across our walnut initiatives and with the efforts over the last three months to restore and strengthen the company's relationships with its growers at a time of record walnut prices. These extensive efforts, along with the goal of providing competitive prices and terms for our growers, are focused on reestablishing the success of this business and expanding our leadership position in the walnut industry."
The transaction is expected to close by the end of this month.