Oaktree Capital Management, L.P., the private equity arm of Oaktree Capital Group LLC (NYSE:OAK), has entered into an agreement to recapitalize Diamond Foods, Inc. (NASDAQ:DMND), the California based packaged food company that was recently tangled in an accounting scandal. Diamond foods will issue $225 million of eight year senior notes to Oaktree, carrying a 12 percent coupon rate. The notes also come with warrants to purchase 4,420,859 shares of common stock, representing approximately 16.4 percent of the diluted outstanding shares of Diamond once exercise. The proceeds for the sale of Notes and Warrants will be used to repay $100 million in term loans and $100 million of revolving credit loans under Diamond’s existing credit facilities.<
Oaktree also receives the right to appoint two directors to the board of Diamond as part of the transaction. The firm has already selected Matthew Wilson and Dean Hollis for the appointments. Wilson is an Oaktree executive and Hollis is the former Chief Operating Officer at ConAgra Foods (CAG).
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In February of 2012, Diamond released a statement indicating that it had found $80 million in unusual payments to walnut farmers which were not properly accounted for in the firm’s financial statements. The irregularities cost the firm’s CEO and CFO their jobs and sent the stock plummeting. The scandal is also blamed for the collapse of a deal with The Procter & Gamble Company (NYSE:PG) to buy the Pringles brand of potato chips, a product that was eventually sold to Kellogg Company (NYSE:K).
The investment from Oaktree dramatically improves the capital structure of Diamond, allowing the firm to reduce bank debt and amend its credit agreements, giving the firm more flexibility as it moves towards strengthening its position in the walnut and snack food industry.
Oaktree Capital Group LLC is headed by Howard Marks, the former Chairman of the TCW Group, and has $83.4 billion of assets under management.
Diamond Foods is up 2.2% and Oaktree is up 4.1% at the time of this writing.