Cedar Fair maintains distribution, will "reconsider" its future

If the government and the news media keep telling the American people that "things are just going to get a lot worse", it'll happen. People need to be positive and not let others dictate what the future holds. Self fulfilled prophecy is the way this world works because people need to feel like someone else is in control of their successes and failures.

The economy is like "magic" to some people; mysterious and difficult to understand.

...At least that's how I see things.

Sucks about the distribution if it happens. If they only did it for a year or so to reduce the debt, it'd be a lot better for the company in the long run. I really don't see that happening though, because people who rely on the dividend returns, like kenzel, for example, would have to do without income.

Although some would say that the Paramount acquisition was too much debt or some other argument, I don't see how CF could have passed on the opportunity. All the parks were in good shape, meaning it would be less work to make profit on them. Heck, Canada's Wonderland is now one of the best in the chain and they haven't owned it for even 3 years.

Of course, we've discussed that CF didn't do the best job in terms of retention of good employees, but no business expected the economy to be the worst in 80 years either.

I think the bigger failure there, above over-paying, was the notion that they could squeeze a bigger margin out of the parks. There wasn't nearly as much fat to trim as they thought.

Jeff said:
I think the bigger failure there, above over-paying, was the notion that they could squeeze a bigger margin out of the parks. There wasn't nearly as much fat to trim as they thought.

Which then makes the initial failure of overpaying truly epic fail category.
You can over pay for something, if long term value creation is there, or if you think that there are tons of "synergy", cost cuts, whatever to be taken out of the equation. If there aren't cost reductions (which the due diligence team of Kinzel's should have mapped out to support the deal), then you have to ensure that future cash flows cover debt service AND debt repayment. I think by the time that the Paramount sale was happening there was sufficient evidence from the PKS (SIX) house of cards, to show that rolling up theme parks with leveraged debt is a no go.

Overpaying for something and failing to realize expected or dreamed up cost reductions, only reinforces the opinion that the initial acquisition was unwarranted.

As for whether CF could have passed up the Paramount assets. Most certainly they could have, and that's Dick's biggest mistake (behind the GL purchase, if you believe him that they bought the park as an ongoing concern).

Honestly, Who else was going to buy them? SIX, Busch, Universal, Disney, Rank, were all non-players in the Paramount sale. It was obvious Viacom wanted OUT, and any buyer should have been able to negotiate a lower than Top Dollar price. In fact, I think after the transaction was consummated, it was announced that FUN was the ONLY potential buyer. (I don't believe that Merlin and/or Parques Reunidos were significant buyers of U.S. assets at that time.)

The margin boosting scheme may have been over-estimated, but the gap between reality and their expectations isn't nearly as big as one would think, the way I hear it. I'd go as far as to say that it was offset somewhat by the bigger wins like CW.

The annual report will be an interesting read this year... that's for sure.

Jeff said:
The margin boosting scheme may have been over-estimated, but the gap between reality and their expectations isn't nearly as big as one would think, the way I hear it. I'd go as far as to say that it was offset somewhat by the bigger wins like CW.

(I'm not trying to be a jerk here, just asking some relevant questions)
If the gap between reality and expectations isn't nearly as big as one would think, then why is Dick talking about suspending the Distribution?

Two choices:

1) The legacy parts of the company (CP, MA, DP, WoF, KBF, etc) must be sucking big time

or

2) They overpaid for the Paramount parks, and they KNEW that going in. They were blinded by the idea of "owning the Ohio market". Thus they either ignored the data that told them they were wrong, or they made up data that proved they were right (WMD anyone?)

i don't think the legacy parks are doing much better/worse than before the PP acquisition, at least through end of 2008. Thus, everything points to the GL and PP acquisitions as the crux of the problem. In short, they were betting "on the Come" (gambling term, gutter minds), and they bet wrong. That goes beyond Epic Fail, and they're now into corporate malfeasance territory.

the stock was up $0.55 today, as the price is now much lower than before, expect volatility like this to become common. Volume today twice the normal average, which honestly is very low. While this stock may not be "thinly traded", average daily volume isn't really that much.

Personally, I think this is just an example of them being overly conservative. Over the years we've seen them make cuts in areas that were negligible at best in terms of boosting that bottom line. The Paramount acquisition was sold internally as something of a car loan, getting it paid off in five to six years. If they did the first $400 million in the first year that was a good start, but what was the target this year, and how far from it were they? I guess we don't know until we see the final results.

But in a year where they spent unprecedented amounts of money on Halloween events, on top of some relatively modest capital projects, I just can't imagine they're waking up today and feeling blindsided. They're just not that irresponsible. Perhaps it's like consumers dialing back even when they don't have to.

CreditWh0re said:

Honestly, Who else was going to buy them? SIX, Busch, Universal, Disney, Rank, were all non-players in the Paramount sale. It was obvious Viacom wanted OUT, and any buyer should have been able to negotiate a lower than Top Dollar price. In fact, I think after the transaction was consummated, it was announced that FUN was the ONLY potential buyer. (I don't believe that Merlin and/or Parques Reunidos were significant buyers of U.S. assets at that time.)

That was never announced. In fact, hedge funds/private equity (which, as you will recall, were all the rage at that point in time) were the other bidders.

Announced was a wrong word choice.

While you may be correct, (as I have no inside knowledge of the deal) I have yet to see anything in print naming a specific "Other" bidder. There are numerous online references to "other bidders" (one referring to 65 bidders in total, which is pure BS). However, I have yet to see a specifically identified entity as being a proven "bidder". (that includes PE, Hedge Funds, or other corporations). There are reports of "unsolicited bids", but those could be written off as typical Private Equity outreach, looking for a distressed seller. I'm referring to proven bidders, who were in the game, at the point that Viacom fomally announced that it was looking to divest the parks.

One would expect that the Private Equity names would have been made known, simply because it's in their interest to reveal that they are either "too smart to overpay for an asset", or that they are going after a marquee deal.

The closest I have ever found to any definitive information on other bidders are various quotes from Dennis Speigel, (a well known Theme Park industry consultant and ). He's quoted mentioning escalating bids, "50-100 Million dollar increments", yet I have been unable to find evidence of confirmed other players in the deal. In other reporting, he was convinced that Universal and AB were going to be players in the deal, which I don't think was ever the case. While he's not quite Paul Ruben, he does have a vested interest in getting his (and his company's) name into print.

Of course, in a deal such as this, specifics will be difficult to find, especially for a non-insider. However, the lack of contemporaneous reporting listing other names, is I think telling.

I'm not THAT aware of all the financials, but it sure seemed at the time like the PP acquisition was quite favorable to CF at the time. PPs were highly profitable, and based solely on my perceptions (misperceptions?), PP probably had the highest ROI outside of Disney (and potentially Busch). The "drag", IMO, is more due to the economic downturn or even the performance of the pre-acquisition CF parks...I find it nearly impossible to believe that the PPs are taking CF into less-profitable times by themselves.

Jeff said:
If they did the first $400 million in the first year that was a good start, but what was the target this year, and how far from it were they?

That would be a good start, but looking through the financial reports I didn't see that amount of debt paid off. Here is what I saw as total debt (in 1000s):

1,759,713 in the 2006 annual report
1,735,461 in the 2007 annual report
1,692,650 in the 2008 3rd quarter report

That is only 24 million paid off between 2006 and 2007 and only 42 million paid off between 2007 and the fall of 2008.

With that performance it may be very difficult for them to pay 58 million (with EBITDA the same) in 2009. I do think the loan convenant is in danger of being violated and I think they will cut the distribution. If they violate the covenant I believe the banks will force them to cut the distribution anyway.

After doing some further research, it appears that Mr. Speigel's firm (International Theme Park Services) actually consulted for Paramount on the disposition of their parks. They (Paramount) "contracted with ITPS on a fast-track basis to provide a complete due diligence valuation on... properties owned by Paramount" [the 4 owned Paramount Parks].

Thus, his comments should be viewed not as an independent industry observer, but as someone with a vested interest in the outcome of the sale. So he may indeed have had knowledge of specific bids, or bidding activity, or he may have been talking outside his relationship with the transaction (his analysis having been completed, and thus no longer a party to any transaction.

rollergator said:
.... PPs were highly profitable, and based solely on my perceptions (misperceptions?), PP probably had the highest ROI outside of Disney (and potentially Busch). The "drag", IMO, is more due to the economic downturn or even the performance of the pre-acquisition CF parks...I find it nearly impossible to believe that the PPs are taking CF into less-profitable times by themselves.

you're missing the point. You mentioned their "highest ROI outside of Disney". That is true, unless you jack up the investment base in that equation. ROI = Return/Investment base. You amp up the denominator and the numerator has to jump (by a lot) to keep the ROI percentage the same. There is no issue as to whether the PP's were profitable before the acquisition. The issue is now they are loaded with $1.2B worth of debt, and the related interest expense. If you now have a mountain of debt and interest to pay, that can't be supported by the earnings (even if they are the same as before the deal), then you simply overpaid. And I think they overpaid by a LOT, and any rational valuation model would have shown that.

I think that's what we're really talking about.

Pete: Did they not peak at $2.1 billion immediately following the acquisition?

Jeff, yes you are right. In looking through the 2006 annual report some more, I saw a term debt payment of 379 million sometime during 2006.

Still, what worries me is what they did after that. I don't know enough about financial indicators to tell if things have really gone south, but I know they have to pay down principal this year that is almost as much as they paid down in the last two years combined. That is reason to worry, I think.

Pete said:
Jeff, yes you are right. In looking through the 2006 annual report some more, I saw a term debt payment of 379 million sometime during 2006.

I don't have any of that data in front of me, but is that simply the "paying off" of the existing debt, which was in reality rolled over into the new debt that accompanied the Paramount acquisition?

Like refinancing your house, you technically pay off the first mortgage, even though you replace it with an equal (or in this case much larger) mortgage simultaneously.

Or did they really pay down 379 million during the year, and then refinanced the existing 470 Million and the 1.3 million for the PP acquisition?

I guess we really don't have a good picture then of what's going on this year, and won't until the call. And even then, the analysts better ask real questions for a change, as they should given the tank in unit price.

So what does everyone think about the latest SEC filing? Seems like this would be great for the company if approved by the lenders, as it seems they would pay off debt at pennies on the dollar.

But, why would the lenders do this? Is the company sending up the white flag, hoping the lenders would cut their losses by accepting this? This seems kind of ominous to me, as I'm thinking what will happen if this is not approved by the lenders. The stock tanked another 32 cents.

Can anyone explain this action better?

Pete said:
if approved by the lenders, as it seems they would pay off debt at pennies on the dollar.

But, why would the lenders do this? Is the company sending up the white flag, hoping the lenders would cut their losses by accepting this? This seems kind of ominous to me, as I'm thinking what will happen if this is not approved by the lenders. The stock tanked another 32 cents.

Can anyone explain this action better?

BINGO! We Have a Winner!!!

This is Kinzel's way of telling his lenders that they have two options. Accept this proposal, or the alternative is much much worse.

The only question I have is, where is he getting the money to buy off the debt (at pennies on the dollar) in the first place.

Here's how his argument will go down: "hey Mr. (and Mrs.) Debt Holder, it's my task to tell you that you have loaned me over a Billion Dollars, and well, shucks, isn't this the darnedest thing, well, the underlying assets are worth, well, a hell of a lot less than what I owe. And really you have two choices, allow me and my senior Mgt. team to make a proposal to buy it back for pennies on the dollar, or you can push the whole thing into bankruptcy, where (after showing you how much ex-amusement park assets are worth, e.g. Geauga and Astroworld), you'll get D*CK (and I don't mean Kinzel).

Ballsy and Brilliant, but the only way he salvages his company, his job, and his stock (regardless of what it's worth at the moment). Oh, for those of you who are still holding this stock (calling Mr. Putz), expect this to devalue your units BIG TIME in the short run.

This could be the masterstroke that saves this thing, and many months from now (with no debt) the shares might actually be worth a lot more. However, this is one final roll of the dice, and I would prefer not to be tagging along for the ride.

For those who may doubt the scenario I provided above, I suggest you look at the recent developments of Station Casinos. They went private in a huge multi-billion dollar Private Equity deal last year (maybe 2007). They sent a debt proposal to their bond holders at the end of 2008, much like what CF has just proposed. Station's bondholders rejected that deal.

Yesterday, Station proposed a "pre-packaged" bankruptcy. A Pre-Pack basically outlines how the company will re-organize itself, which debts they won't pay, which one's they will, and basically helps speed the process. It is still a bankruptcy filing, in which the Trade and most of the unsecured creditors get shafted. However, Mgt stays on (usually) and the debt holders get something (typically more than if forced into a typical Chapter 11, where most of the assets get eaten up in Legal and Financial advisor fees.

Again, Station's offer was basically, "we gave you one shot, you didn't take it. Here's a worse proposal for you, but it's still not as bad as what will happen if you don't take it".

Sound familiar?