Moody's Places Diamond Foods (DMND) on Review for Upgrade Amid Merger Deal

Moody's Investors Service, ("Moody's") placed the ratings of Diamond Foods, Inc. (Nasdaq: DMND), including its B3 Corporate Family Rating, on review for upgrade. This follows the company's announcement that Snyder's-Lance, Inc. (unrated) (Nasdaq: LNCE) signed a definitive agreement to acquire Diamond Foods. Moody's views that the post-acquisition entity will likely be a stronger credit than Diamond Foods on a stand-alone basis. Snyder's-Lance announced that it intends to refinance Diamond's debt at lower interest rates. Moody's review will focus on the post-transaction business profile and capital structure. If any Diamond Food's existing debt remains outstanding following the transaction and is guaranteed by Snyder's-Lance, it could have a higher rating based upon the post-acquisition entity's stronger credit profile compared to Diamond Foods. If Snyder's-Lance does not guarantee Diamond's debt post transaction, Moody's will need to continue to receive sufficient stand-alone financial information on Diamond in order to maintain ratings. If sufficient financial information is not received, or if Diamond Foods' debt is repaid as part of the transaction, Moody's will withdraw its ratings on Diamond.

The following ratings were placed on review for upgrade:

- Corporate Family Rating at B3;

- Probability of Default Rating at B3-PD;

- Senior Secured Term Loan at B2 (LGD 3);

- Backed Senior Unsecured Notes due 2019 at Caa2 (LGD 5);

The following rating is unchanged:

- Speculative Grade Liquidity Rating at SGL-2.

RATINGS RATIONALE

Diamond's existing B3 Corporate Family Rating (CFR) reflects its high financial leverage, narrow margins, declining sales in its nuts category as the company exits lower margin business, and its exposure to commodity risk. It also reflects its relatively small scale compared to other market-leading branded snack food companies. Diamond's weaknesses are partially offset by its attractive snack categories, solid portfolio of snack brands -- including Kettle Brand and Pop Secret -- modest geographic diversification outside of the US, including a solid presence in the UK, and good liquidity.

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