(Reuters) - Diamond Foods Inc (>> Diamond Foods, Inc.) hired a financial adviser to help assess its capital structure as the company tries to recover from an accounting scandal that has claimed the jobs of top managers and raised fears about debt-heavy finances.

The company said on Tuesday it retained Dean Bradley Osborne Partners LLC -- started by a group of former Morgan Stanley (>> Morgan Stanley) investment bankers -- as its financial adviser to look for ways to strengthen its balance sheet, which is saddled with more than $500 million of debt.

Analysts had predicted that Diamond was likely to breach its debt covenants because of impending restatements, after accounting issues over grower payments cost both its chief executive and chief financial officer their jobs.

Diamond also said it expects to pay significantly more for walnuts, forcing it to raise prices, after farmer complaints of years of underpayments leading to a supply shortage of one of its most important raw materials.

The company, known for its Emerald nuts, Kettle chips and Pop Secret popcorn, said non-retail walnut sales in the ongoing fiscal year decreased significantly due to less supply.

Last month, some California farmers told Reuters they planned to stop selling their walnuts to Diamond in the wake of the scandal.

Diamond's new management has been trying to mend its strained relationship with walnut growers and reiterated that it was making "extensive efforts" to fix those relationships.

Increased global demand has driven walnut prices higher by at least 35 percent this year, Diamond said in a statement.

However, the company said its major brands gained market share and outperformed rivals in grocery stores and some other retailers for the 12-week period ended February 18.

The San Francisco-based company's shares, which have lost three-fourths of their value since September, rose 4.5 percent to $25.64 on Tuesday on the Nasdaq.

Diamond also said it is making "substantial progress strengthening its financial reporting and control capabilities" and in restating financial statements for fiscal years 2010 and 2011.

The company said interim CFO Michael Murphy of Alix Partners, a consultancy specializing in business turnarounds, is working with the company's banks and addressing financial reporting and restatement issues.

(Reporting by Mihir Dalal in Bangalore; Editing by Saumyadeb Chakrabarty and Gerald E. McCormick)

By Mihir Dalal

Stocks treated in this article : Diamond Foods, Inc., Morgan Stanley