Diamond Foods Inc., the unprofitable producer of Pop Secret microwave popcorn and Kettle Brand potato chips, cut the rate on a $415 million loan it’s seeking to refinance debt, according to a person with knowledge of the transaction.
The loan will pay interest at 3.25 percentage points more than the London interbank offered rate, with a 1 percent floor on the lending benchmark, said the person, who was not authorized to speak publicly. Diamond originally proposed paying a spread of 3.75 percentage points to 4 percentage points more than Libor.
Under the refinancing, Oaktree Capital Group LLC agreed to exercise its warrant to purchase Diamond Foods’ common stock, delivering the San Francisco-based company $29.2 million of net proceeds to help pay off bonds due 2020 and bank debt, according to a regulatory filing today. The packaged food company, which has junk-grade ratings of B3 at Moody’s Investors Service and B-at Standard & Poor’s, had $593 million of debt at the end of October, according to data compiled by Bloomberg.
The “ratings reflect the challenges facing some of its categories, including popcorn, which has experienced declining consumption,” Moody’s analysts led by Linda Montag, wrote in a Jan. 30 report. “The company still needs to demonstrate that it can regain growth momentum across its businesses.”
Diamond Foods posted a $195 million loss in the 12 months ending Oct. 31, with each of its last three quarters being unprofitable, Bloomberg data show.
The 4 1/2 year loan it’s seeking will be covenant-light, meaning it will lack financial maintenance requirements designed to protect investors, according to the person with knowledge of the deal.
Credit Suisse Group AG is arranging the loan for Diamond Foods and the debt will be sold to investors for 99.5 cents on the dollar, said the person. Investors have until 5 p.m. today in New York to let the bank know whether they will participate in the deal, according to the person.
The company is also entering into a $125 million asset-based revolving credit line and will sell $230 million in senior notes due 2019 as part of the refinancing plan, according to a Jan. 28 statement.
Diamond Foods shares fell 1 percent to $24.38 today at 12:13 p.m. in New York.