Cedar Fair gets better credit deal, intends to pay $1 distribution this year
Posted
[Ed. note: The following is an excerpt of a press release. -J]
Cedar Fair Entertainment Company (NYSE: FUN), a leader in regional amusement parks, water parks and active entertainment, today announced that it has amended its senior secured term debt facility dated July 29, 2010, on terms reflective of the recently improving conditions in the credit market, as well as the Company’s strong performance and favorable outlook for 2011 and beyond.
“This amendment is the latest step in the ongoing management of our capital structure to provide financial flexibility along with sustained and growing value for our unitholders,” said Dick Kinzel, Cedar Fair’s President and Chief Executive Officer. “The rate reduction alone offers us an annualized cash interest savings of approximately $18 million at today’s interest rate levels.”
Kinzel noted that the refinancing also is a testament of the Company’s relationship with its lenders, who continue to be strong supporters of Cedar Fair.
Under the new lending arrangements, interest rates have been reduced, certain covenants modified and the maturity extended one year to December 2017. Interest rates on the senior secured term debt facility decreased to LIBOR plus 300 basis points with a LIBOR floor of 1%. This represents a 1.5% improvement over the previous rates of LIBOR plus 400 basis points with a LIBOR floor of 1.5%. The amendment also improved the Company’s flexibility surrounding distribution payments. In 2011 the general distribution basket has been increased to $60 million from $20 million. This basket will revert back to $20 million beginning in 2012, while the parameters surrounding the excess cash flow sweep have been widened for 2012 and beyond. The customary affirmative and financial covenants remain unchanged.
“We continue to follow our balanced approach which consists of capital investment in our world class parks, along with the prudent management of our cash flow for sustainable and growing distributions and debt reduction. It is our goal to distribute $1.00 per unit in distributions in 2011, provided we achieve our 2011 free cash flow expectations,” concluded Kinzel.
Read the entire press release from Cedar Fair.
Seems like an odd deal to strike. They increase their distribution to $1/unit this year but then the limits revert to where they were for 2012 (and beyond presumably). Increase in unit price from increasing distributions typically has built into it an expectation that distribution levels will at least remain the same. Not sure what it does if you can make the higher distribution this year but then go back to the lower levels thereafter. Also doesn't seem to be a ringing endorsement from the lenders (at least on a long term basis). Seems to me a sliding scale would be much better so that if your EBITDA or excess cash flow is $X, you can make up to $Y distribution and if its $X+A you can make $Y+B in distributions. Do they plan to go back to the lenders in 2012 if its a good year for another amendment to pay a higher distribution?
How long until Q files something complaining about this amendment?
In 3...2...1...
Cedar Fair has made a good move. This move secures the proposed dividend for 2011 at a minimum of $1.00. It leaves the future dividends at some risk as the cash to fund them must come from the cash sweep provision.
These cash sweep provisions are tied to financial ratios. The better the CF performance, the more funds available for distributions. CF could grow into larger distributions in 2012 and beyond.
If performance continues to improve, and it should given proper management, growth may/should make it possible to pay historical level dividends.
Cedar Fair has lots of room to grow, for one example, in the area of on park spending. Six Flags recently reported on park revenues of $40.18 per visitor, a year over year increase. Cedar Fair reported on park revenues declining .35 cents per visitor, and in the range of $35.00 per visitor.
To catch up to the Six Flags benchmark Cedar Fair must increase on park revenues approximately $5.00 per visitor. This would increase CF revenues approximately $114 million, and drop in the neighborhood of $63+/- million to the bottom line.
The numbers are better if CF continues increasing visitors to the parks. CF projected revenue, and profit, growth going forward in the recent quarterly and year end analyst conference call.
We may see a sell off in shares as some folks or institutions move to take profits on this good news. The key thing to be wary of is if Q Investments begins to cash out.
Congratulations are in order for Cedar Fair. This refinance is a step in the right direction.
Where is the flexibility to increase the distribution in 2012 without going back to the banks? Press release says it goes back to $20 million which is something less than 40 cents/unit. Press release also says that the "parameters surrounding the excess cash flow sweeps have been widened for 2012 and beyond." Not clear to me exactly what that means though I read to it mean that the excess cash flow covenant will be more restrictive to the company (either more broadly defining excess cash flow so there will be more that needs to be used to pay down term debt or requiring that a higher percentage of excess cash flow will need to be used to pay down term debt). If they have additional capacity beyond the $20 million in 2012 based on strong economic performance, I would have expected to see the company mention that in the press release. But I haven't seen their excess cash flow covenants (either originally or as amended). I guess we will see when they file their 8-k.
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