Diamond Foods Stock Play a Little Nutty
NEW YORK (TheStreet) - As Diamond Foods(DMND) tries to resolve a potentially crippling set of accounting, debt and regulatory issues, investors shouldn't try to nibble on the snack food-seller's shares until the company gets its financial house in order.
After reports Wednesday of a possible minority investment by private equity -- and a forbearance agreement with lenders like Bank of America(BAC) -- stock investors won't have much chance to make a thoughtful investment in Diamond Foods, even if the company's food brands continue to show strong value.
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That's because a lender agreement to keep all debts from coming due immediately expires only a week after the company is expected to finally file earnings for the fiscal third and fourth quarters, giving investors little visibility into Diamond Foods true health.
On Wednesday, Diamond Foods said that through June 18 it's agreed to new terms with its lenders that will avoid making all of the company's loans due immediately. If those loans were to be called as a result of covenant breaches, the company could face a default and possible fire sale.
As part of the forbearance agreement, Diamond Foods will pay a higher interest rate on its credit line, suspend its dividend and work with a newly hired financial advisor Dean Bradley Osborne to raise capital and ensure its balance sheet meet covenants. Separately, the Wall Street Journal reported that private equity firms KKR(KKR) and TPG Capital were considering a possible minority investment in what's known as a "PIPE" deal.
Earlier in March, Diamond Foods said it had received an extension to file its earnings results for the quarters ended on Oct. 31 and Jan. 31 by June 11. The company also said it received a "non-compliance" notice from the Nasdaq, but will continue to be listed and traded as it works to file earnings.
That news is good for Diamond Foods, even if stock investors don't cheer because it gives three months time for the company to repair its finances, as it resolves accounting issues and a Securities and Exchange Commission investigation.