Cedar Fair debt load will reach $2 billion, distribution ride expected in 2008

Posted Wednesday, May 24, 2006 10:43 AM | Contributed by Jeff

Stockholders should expect their dividends to remain steady for the next year or two while five Paramount Parks pay for themselves, according to a financial presentation from Cedar Fair Monday and interviews with officials Tuesday. Revenue aside, Cedar Fair will accumulate liabilities from the move. The purchase will grow the company's debt to almost $2 billion, with annual interest payments reaching about $100 million. Cedar Fair paid about $26 million on debt interest in 2005. Added revenues from the Paramount Parks, as well as reducing expenditures such as further expansion and park acquisition, will fund much of that debt, Kinzel said.

Read more from The Sandusky Register via PointBuzz.

Link: PointBuzz

Wednesday, May 24, 2006 10:44 AM
Jeff's avatar It's interesting that Wall Street really hasn't reacted. Growth is certainly slow going forward, but if you get in now at $26 and change, and the distribution does in fact go up in two years (and it's already in a good place), you're doing very well for yourself.
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Wednesday, May 24, 2006 11:48 AM
It will be interesting to see if the stock splits again prior to the end of Kinzel's rein.

I, too, was surprised that Wall Street hasn't reacted to Cedar Fair's side of the deal. It appears that investors are happy with CBS which has seen a sudden influx in cash.

Good time to buy if you have the resources to do so, in my opinion.

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Wednesday, May 24, 2006 12:18 PM
I got in to FUN (Cedar Fair) through Sharebuilder and then decided to buy some units outright. So far it's looking like a good decision.

I'm a bit surprised too that there hasn't been much of a reaction from Wall Street. I am a little worried about the 2 billion debt and the 100mil interest payment but I have faith in those at the top to run the company correctly.

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Wednesday, May 24, 2006 12:52 PM
Jeff's avatar Knowing their philosophy on relatively quick returns, I don't think they would have bought the parks if they didn't expect to pay for them relatively quickly. I assume that's why they don't expect an increase in the distribution for a couple of years.

I agree, that with the price hanging out near $26, now is a very good time to buy. That's a nice 7% return on the distribution alone at $1.88 per unit annually.

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Wednesday, May 24, 2006 1:17 PM
so when does cedar fair start paying the bills and getting the revenue from the parks. is it when they close the deal or is it at the beginning of next season.
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Wednesday, May 24, 2006 2:06 PM
I hope all works out well, im sure Premier Parks and other past owners of SF had the same ideas that Cedar Fair has, but it didnt turn out to well for them.

All the paying off of debt assumes the economy will stay in the shape it is now, but one terrorist attack or the ecomony tanking could make all these plans go far off course.

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Wednesday, May 24, 2006 2:57 PM
lol, this really is a win-win situation. i hope all parties benefit as much i think they will:)
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Wednesday, May 24, 2006 3:00 PM
Jeff's avatar 9/11 caused problems for the destination parks in Orlando, but regional parks, as these are, didn't take a big hit at all. (Six Flags did, but we all know that was for other reasons.)
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Wednesday, May 24, 2006 3:54 PM
rollergator's avatar ^ Like weather? ;)
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Wednesday, May 24, 2006 5:11 PM
"as well as reducing expenditures such as further expansion and park acquisition"

By "expansion" do they mean creating new parks in new markets OR are they talking about "expanding" their current parks (ie adding new rides, etc). In other words is this little sentence indicating that we should not expect much in the way of new rides in the next few years? Ambiguous sentence or idiot reader...I can't tell! :-)

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Wednesday, May 24, 2006 5:38 PM
I am guessing that it means they are planning to insure their own profitability and ability to manage their debt load before they purchase the Universal parks*. :)

By comparison, Premier bought three waterparks in CA, then bought FunTime, then bought Elitch Gardens, then bought Kentucky Kingdom, then bought The Great Escape, then paid way too much to buy Six Flags. They got themselves into $2B of debt before they had the revenue in place to service it. Cedar Fair is a little more cautious.

Consider this: How many outstanding shares are there of FUN? How much does it cost them to give that nice quarterly divedend? $1.88/unit/year on 54,400,000 units is 102 million dollars. So they are paying unitholders an amount slightly more than the interest they are paying on their debt. Someone correct me if I am wrong, but isn't the net revenue (160 million) what is left of their gross revenue AFTER operating expenses, taxes, interest payments and dividends? So in other words, they can service their debt, pay their unit holders, and still have $100,000,000 left over? When was the last time PKS had a profit like that?

--Dave Althoff, Jr

* Merely naming the one other park chain I know of that might be for sale. Think nothing of it.

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Wednesday, May 24, 2006 7:06 PM
If Universal goes on the block, I could see Busch being interested. One reason is because the joining of the Busch and Universal parks would make a great combination in Florida. Sure, the parks aren't all together like the Disney parks but this would make a strong competitor to the Mouse and would allow the parks to promote themselves collectively. In addition, Busch has their beer business to keep the cash flow going.

Of course, Busch might be interested in picking up a couple of the Six Flags parks if the opportunity presents itself. SFFT would be one possibility because they could tie it in with Sea World of Texas. Another would be SFSL because of its hometown location.

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Wednesday, May 24, 2006 8:30 PM
No brand spaking new coaster for a few years at GA will be fine with me, as long as they move KD's FOF out here I'll be happy ;o). If needed, they can gladly take Vortex or Invertigo as a trade off!
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Wednesday, May 24, 2006 10:33 PM
Jeff's avatar Busch has expressed interest now and then of divesting the parks, so I doubt they're going to buy anything.
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Thursday, May 25, 2006 6:32 AM
I don't believe that Busch will be divesting parks any time soon because the potential buyers aren't there with both Six Flags and Cedar Fair tapped out. Besides, the Busch parks are well run and appear to be quite profitable.

As for Universal, this is a situation like Disney where much of the value of the parks is tied in with the movie operations of the parent companies. If the parks were sold, their value would drop because of the potential licenseing problems that would result. Both Disney and Universal control both ends of the licensing at their parks. This is not true at Six Flags or Paramount now but these parks don't need the tie-ins so much. If they have difficulties in the future retaining their rights, they will just look for some other characters or shows to theme instead.

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Thursday, May 25, 2006 2:50 PM
The Busch parks don't necessarily exist for profitability. I am sure they clear a profit each year, but the reason Busch parks exist IMO, is to soften the image of the nation's largest alcohol producer.

Shaggy

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Thursday, May 25, 2006 3:27 PM
Jeff's avatar Very true. They love to tout their conservation efforts every chance they get, and you hear about it every time they nurse a beached whale back to health in California. It's easy to chalk that up to being a good corporate citizen, but when you sell a product that potentially hurts people or is a source of addiction, I'd say it's not quite that deep. :)
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Thursday, May 25, 2006 5:37 PM
One little problem for Busch. There might be some people in Western Pennsylvania that will not be going to any Busch parks this year. Busch is destroying a local icon, Rolling Rock Beer, by moving production to New Jersey.. Fortunately for them, the population of Western PA is not growing.
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Thursday, May 25, 2006 10:56 PM
But there are a lot of people who live all over the country and have roots in PA who still drink RR. Maybe no longer. But who knows, A-B might be able to recreate the taste of Rolling Rock substituting spring water from the Laurel Mountains with leachate from a landfill in NJ. :)

They have nice parks, but I'd rather drink a urine specimen than a Bud.

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