Cedar Fair files intention to sell additional units

Posted | Contributed by Jeff

Cedar Fair today filed for a "shelf issue," which will allow the company to sell new partnership units at any time in the next two years, totalling $195.9 million.

Read more from Reuters.

So because Cedar Fair isn't a completely public entity, does that thing-a-ma-bob I just learned about in Finance class that stockholders have the option of buying more shares to retain the same control in the company apply to them? Just curious ...

Either way, that's great news. 2007 is going to be an interesting year ... (either that or Cedar Fair and Busch have reached an agreement ... )

I think this was something they mentioned to help finance the WoA/Geauga Lake project.
Jeff's avatar
Cedar Fair is a completely public entity, it just happens to be the rather obscure limited partnership type.

As long as it doesn't dilute the value of existing units, I'm all for it. Buying Geauga Lake certainly caused a hit on their debt load, and I'd hate to see them scale back on cap ex the next few years.

Here's what it means. CF L.P. has $100 million in revolving debt, or debt that is refinanced every year. C.F. may be worried that interest rates will be rising, so they want to pay off their revolving debt now. However, they are issuing $195 million for sale, but have only $100 million to pay off. This is surprising. It essentially means that CF wants to have this kind of cash available. I think they have a big trick up their sleeves and it wouldn't surprise me to see major acquisitions in the coming years. Remember, GL was for less than $195 million, and I believe they paid in cash. What could CF do with $195 million as a down payment on acquisitions? This could mean anything and everything in the world. It probably won't affect stock prices (depending on what price they introduce the units at), but it signals the great potential for *major* financial moves in the future. As a guy with just about all of my saved money put into CF, I am excited about this.
Jeff's avatar
No, they're not paying it off now. They're exercising the option to sell more units at any point in the next two years when they feel the market conditions are right to do so.
Why would they be issuing more units? To have a supply of cash available. Why they would want this cash available is unknown to anyone outside of the company. One *possible* reason is to pay off the revolving debt. Note that in my previous post I said they *may* be worried about interest rates rising. I find this unlikely though, since they are issuing units worth significantly more than their debt. Look for major acquisitions in the next two years. I really could not have been clearer in my first post.
But it "really could not be clearer" that they issued shelf units. That means they're available, the paperwork's done, but they haven't and probably won't be sold yet. Jeff knows what he's talking about and since I learned about it last night in class, for at least the next two weeks until the Final and I forget everything, I know what I'm talking about too ;)

I think the timing of 2 years is just about perfect for the time when they'd probably have to secure financing for whatever masterpiece move (be it rides or parks) that Kinzel has up his sleeve for the '07 season.

Yes, they issued shelf units. This means in this case that they can issue these units anytime within the next 2 years. They could be issued tomorrow, or in June of 2006. But regardless of when they are sold, it means that CF wants the availability of cash in the next two years. CF didn't file this for fun -- it probably cost them at least 1 million in lawyer and filing fees -- so these units will most likely be issued eventually. All I'm saying is that this indicates their wanting a large availability of cash in the near future. I never said they already issued the units. Will you please read what I have written?
Jeff's avatar
Issuing more units isn't something they're going to take lightly for a lot of reasons, not the least of which is diluting the distribution, something I'm not for at all. The offering, if they exercise the whole thing, is 11% of their current market cap. That would put a nice dent in the fabulous distribution per unit.

My guess is that they'll wait for fabulous results at the end of the year, when they think they can maintain the unit price. Now that it's over $30, I doubt they want to let it slide.

Any dilution in distribution will be insignificant compared to potential growth on a major acquisition. If CF were to use $200 million as a down payment on an acquisition and finance the rest, they could afford many things. Personally, I would not be surprised to see SF unload a few more parks to CF within a few years.
Jeff's avatar
And how do you suppose Six Flags is going to repay their debt without parks to generate revenue? Magic?
I don't really know anything about Premier because I don't have any interest in them. I have all my eggs in one basket -- CF -- and I watch it like a hawk. I'm sure SF would like to get rid of a few underachieving parks, but who knows. Regardless of what it is, CF is about to make at least one big acquisition in the next few years.
Jeff's avatar
So you want us to listen to investment theory from someone that invests in one place? Whatever dude...
It is Warren Buffett who has that theory. If you have your eggs in many baskets, it is likely that a few of those will end up losing you money. You put your eggs in one basket, and you watch it like a hawk. Besides, anyone who puts money in the stock market that they can't afford to lose overnight has no business in the market. If it weren't for CF, my family would be completely out of the stock market. Gas wells are the way to go, man. And besides, it's not an "investment theory" I have, it is just thinking of all the possible scenarios. *** This post was edited by MagnumAllan 6/23/2004 10:03:35 PM ***
*** This post was edited by MagnumAllan 6/23/2004 10:09:18 PM ***
Jeff's avatar
Whatever dude... that's the stupidest thing I've ever heard. Ask the people that put money in 401(k)'s and put a majority of the fund into the company they worked for. See: Enron, WorldCom, etc.
That's why you watch the nest like a hawk and don't bet money you can't lose.
*** This post was edited by MagnumAllan 6/24/2004 9:48:29 AM ***
Jeff's avatar
Whatever dude... and you'll never make any money in the long term and retire with nothing.
Well, I've doubled my money in the last five years by owning CF stock, and in the last six months I've made a small fortune in gas wells. To put it another way, I've taken my $4,000 in summer internships money and paid for my remaining years at Case. As for retiring with nothing, I'll be a neurologist soon enough. Needless to say, I'm not worried about a thing.

*** This post was edited by MagnumAllan 6/24/2004 3:12:40 PM ****** This post was edited by MagnumAllan 6/24/2004 3:15:26 PM ****** This post was edited by MagnumAllan 6/24/2004 3:16:00 PM ***

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