Debt load forced Cedar Fair's hand for sale

So basically, he has about the same level of ability to manage finances as someone who bought too much house using an ARM. He let emotion and ego drive his decision to want the Paramount Parks and the yes-men on the board went along with the purchase they couldn't really afford because, "our revenues will never go down and we can always refinance." How any buyer could even entertain the idea of keeping this guy around is pretty much beyond me.

+1 Matt.

There was also the idea that they know better, and that PP was full of extravagant business practices. Turns out that wasn't the case, and they've managed to piss away all of the talent they could have learned from.

Typical LBO is financed in large part with term debt with a 5-7 year maturity and balloon payments at maturity. So there is little, if any, expectation that you will be able to repay the debt with cash flows from the business. Expectation is you will either refinance at maturity or sell the business. If you make the assumption that you will be unable to refinance when the loans mature, you shut down large portions of the LBO market. And when you look at the economic down turns we have had over the past 50+ years, how many have also had financial meltdowns/credit freezes like this one?

I knew they should've asked for Bail-Out bucks!

;)

+1 GoBucks89. (Assuming LBO means "leveraged buyout" and not "large bowel obstruction." ;) )

This really doesn't support the accusations some are making here. It still sounds like a normal course of business with an unexpected/unforeseeable economic crisis.

I don't think they had any reasonable contingency plan in place if they could not bring the expectations of additional profitability from the Paramount parks to fruition. Have the revenues of the legacy parks or even the Paramount parks declined by so much that without having overpaid in the first place based on Dick's ego, the company would be in danger of bankruptcy? I don't think so. They didn't do enough research into the Paramount acquisition and overpaid at the peak of the market. Now the same people that did that want to cash out with millions and leave the unitholders with 1/3 of what they had before they screwed up with this purchase.

My guess is that the contingency plan in that instance would be that they would have refinaced the debt at higher interest rates because the company was more highly leveraged that they expected it would be after the Paramount acquisition. But the financing markets have changed dramatically in the last 2 years or so such that deals that were routinely done then (with higher pricing based on leverage levels) are not being done today because banks will not approve them. My guess is that as part of the approval process for the proposed sale and in general, CF has been talking a lot with lenders and what they have been hearing is not very positive at this point.

Isn't the U.S. economic situation getting better? Shouldn't Cedar Fair just wait it out until things get back to normal? Why do the big wigs on the board not think that that is a good idea?

Dick is acting like a business owner. Many of them get rich by screwing other people out of what they deserve.

Poor Dick and Jack. It must be really sad to sit in their lofty offices right now and think every day how Cedar Fair may slip from their hands. Kind of like how Gasper Lococo sat at Geauga Lake during the auction saying he couldn't believe what was happening to the park he worked so hard to build up into something successful for so many years until he sold Funtime Inc.

Take a good, long, hard look around Dick and Jack....soak up the moment, it may be your last. Your time has come and gone and the door is about to be shut in your faces.

I have a quick question about Kinzel's house. Does he own it and the property or is this a CEO perk? If he gets kinked I am sure he will loose this or want to get rid of it in either case.

I know I have seen this asked before by someone else. Sorry if it was already answered, but I can not find the original post.

I recall seeing the house and property listed in either a trust or in his wife's name.

I was wondering the same thing, Bill2. What would become of Kinzel's home by the park if he was forced out of the company? Does the park own the home, or does Dick?

Also, are there people who own CF shares who want to see Dick suffer because they feel betrayed? It doesn't seem that he has the shareholders best interests at heart like he used to.

Not hard to find on the Internets...

http://erie.iviewauditor.com/Data.aspx?ParcelID=55-00101.000

Appraised at $1.4 million. It was sold from Dick and Judy to the trustee entity in 1999. That's a lot of square footage.

LostKause said:
Isn't the U.S. economic situation getting better? Shouldn't Cedar Fair just wait it out until things get back to normal? Why do the big wigs on the board not think that that is a good idea?

There is a lot of mixed info out there with respect to the economy. Some people believe the worst is behind us; others do not. Unemployment is still on the rise. There is a lot of talk about a jobless recovery. None of that bodes well for CF. And had CF management elected to pass on the Apollo offer and focussed instead on refinance with the hope of an economic recovery but the recovery is slower to come than hoped and the refinance fails with a bankruptcy the result, I am sure folks would be complaining that management should have taken the Apollo offer. Its a risk no matter which approach they take.

Jeff said:
That's a lot of square footage.

Home movie theatres require a lot of space ;)

GoBucks89 said:

And had CF management elected to pass on the Apollo offer and focussed instead on refinance with the hope of an economic recovery but the recovery is slower to come than hoped and the refinance fails with a bankruptcy the result, I am sure folks would be complaining that management should have taken the Apollo offer.

Exactly.

That's because in either case, they got here by a series of bad decisions that were still bad decisions even when things were peachy.

Hmmm... interesting concept. So, they were bad decisions even when the outcome was good, but now that the outcome is bad, they are definitely the cause? I don't really think it works that way.

You would have to look at the series of bad decisions and determine the impact on income/EBITDA and/or cashflow to determine the effect on leverage and thus the current ability to refinance. And then you would need to look at whether the determination of any given decision as being bad could have or should have been made at the time of the decision or if such determination is made in hindsight. Neither of those are easy to do with much certainty.