Dominion Diamond Agrees to Sell Assets Back to Owner
May 26, 2020 by Rob Bates
'Meet the new owner. Same as the old owner.
Dominion Diamond Mines, which filed for protection from insolvency in Calgary, Alberta, Canada, court in April, has reached an agreement that would sell its assets back to its most recent owner, Washington Companies.
Under the deal, Washington would pay $126 million for substantially all of Dominion’s assets—which include 90% of the Ekati diamond mine, 40% of the Diavik diamond mine (pictured), and the Lac de Gras diamond project, all of which are located in Canada’s Northwest Territories. It would also assume Dominion’s operating liabilities and provide Dominion up to $60 million in short-term debtor-in-possession financing.
That price is far less than the $1.2 billion Washington paid for Dominion in 2017, which included $550 million in secured debt.
The proposed asset sale—which has received support from its first lien credit holders—requires court approval and could be axed if the creditors receive a better offer.
In a May 22 filing, Dominion argued that the stalking-horse bid from Washington sets a floor price for the company and assures the local community that Dominion will survive as a going concern.
Dominion expects the sale process to move quickly and close in the coming 90–120 days.
The deal contains certain conditions, including Dominion reaching an agreement with Rio Tinto regarding its joint venture at the Diavik mine. The two longtime partners have publicly squabbled during the insolvency proceedings.
If the two partners cannot come to an agreement “on terms acceptable to Washington,” then the sale would not include Dominion’s interest in the Diavik mine, the filing said. It’s not clear what would happen to that holding in that instance. Rio Tinto and its counsel did not respond to an inquiry by publication time.
One bondholder, Eric Hoff, senior research analyst of DDJ Capital Management in Waltham, Mass., argued in a May 8 court filing that Washington’s proposed purchase “should be carefully and thoroughly scrutinized.
“The proposed funding and repurchase by equity owners who, by definition of these insolvency proceedings, no longer hold an economic interest in Dominion Diamond and its affiliates and who are in an advantaged position by virtue of their long-standing privileged access to confidential information, is highly unusual and can lead to abuses and inequities without proper checks and balances,” he said.
He added that a Washington-appointed board of directors reviewing the transaction raises “serious process and conflict of interest issues.” ... "
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