Cedar Fair A "Going Broke Candidate"

[The Interpreter]

The Motley Fool:

...

Are we being taken for a ride?

It's always interesting to see the information that companies choose to withhold from their earnings releases. For example, one of this month's "going broke" candidates, Cedar Fair Entertainment Company(NYSE: FUN), decided to include only top-line total assets, debt, and shareholder equity information in its most recent earnings release. That's OK, though, because the company had to report the real details of its balance sheet in its 10-Q for everyone to see anyway.

I can see why Cedar Fair would like to quietly not acknowledge its current situation....

emphasis added

http://www.fool.com/investing/general/2009...-broke-now.aspx

[shark6495]

is it just me? I have never heard any one who has gotten rich from a chain of theme parks (ok current, not people who originally created the park and sold it) What I mean by this, it seems the parks who are seasonal have harder times keeping the parent company in the black. As parks continue to spend money it does not show a greater population boom, but more of a leveling process. Again i state this with out researching the numbers but look at Six Flags, the debt Ceder Fair is in, Busch Gardens being sold (which was a way of saying they were cutting losses while the getting was still good).... Can a company survive owning multiple parks? Can a company survive with out owning multiple parks?

[The Interpreter]

Before a certain company paid $1.24 billion for five regional, seasonal parks and certain other assets, it was a very profitable limited partnership known for constantly increasing distributions that could be and were depended on by those who needed a continuous, reliable income stream.

The effect of that acquisition cannot be overstated. It could not have come at a worse time, and even if the economy had not tanked, still was of very dubious wisdom, if it can be called that.

Many small parks are VERY profitable. See, for instance, Holiday World.

Busch Entertainment Company was sold by InBev to generate cash to help pay down debt it incurred when it bought Anheuser Busch. BEC was in no way in any trouble.

[shark6495]

oh I didnt mean to infer BEC was in trouble, but I meant it shows that some company owners can see a park line as being a never ending circle of dollar chasing, versus a company finding its sweet spot and keeping it there for a few years. If a park stays "status qou" it could quickly fall out of favor with the general public very quickly. If a beverage company gets to status qou it does not have to actively upgrade its products every year. Plus if I am right, Busch Gardens (both Williamsburg and Tampa) are open year round. it just seems the seasonal parks are harder to maintain with large profit models, when multiple parks are being owned. No doubt the certain company who bought 5 regional seasonal parks, was doing well before the acquisition, but it just seems that the more parks you own the harder it is to create a profit for the mother company.

if you own lets say 3 parks. and you do a "fix a park" every three years, meaning every year one of your three parks gets a new upgrade. it would seem its easier and more profitable on the small scale. When you own, lets say 7 regional parks, you would have to upgrade 2-3 parks a year, and some parks are not as profitable as the rest.... just an opinion that I am refining as the night goes

[The Interpreter]

Have you forgotten that BEC also owned the Seaworld parks, Sesame Places and other entertainment assets?

[shark6495]

can you forget something you never knew?

[The Interpreter]

Then also know that Paramount Parks was very profitable, and CBS made a fortune when they sold the parks...

[CoastersRZ]

Yes, shark6495, as the size of the company grows, there are some more levels of management/positions that the corporate company has. For example, its fair to say that Cedar Fair has more corporate level executives than say Coney Island or Holiday World. However, the biggest thing that happens with companies like Cedar Fair and Six Flags, is that they often choose to invest more heavily in the parks that generate the most revenue. So some parks often seem to not get the large capital expenditure projects of the signature parks, like Cedar Point. But the more parks one owns does not mean it is harder to make money. The inherent problem with Cedar Fair when they acquired the Paramount Parks is that they took on a large amount of debt. That debt has a significant impact on their balance sheet, and in turn has an impact on their ability to earn money and profits like they did before the acquisition.

Another thing about smaller parks like Coney Island and Holiday World. They are one park and the executives at those parks can focus solely on that park and do not need to worry about meeting corporate`s budgets or projections. Additionally, they do not have to worry about getting a capital project approved for fear of loosing it to another park in the chain. Typically the revenues generated from these small parks will be used to reinvest in the park, as is clearly evident by Holiday World`s continued expansion.

[shark6495]

so you have some very good points terp, which brings me to my question

what is the exception and what is the rule. For example Paramount Parks was profitable, but could it be they were profitable because they brought a sense of factory parks, by which I mean all the parks receive the same upgrade at the same time. or are parks less profitable when owned by big corporation. And to be fair Paramount had a very big pocket to put money into their parks and for advertising dollars to push their parks. Where you get a ceder fair type company, who has deep pockets, but not the multimedia reach....

Just looking at park ownership through an outsiders point of view.....

EDIT: Thanks coastersRZ, I posted that before I read your post....

Thats sort of what I was getting at are smaller parks able to keep a better eye on their profit.... just trying to learn

[The Interpreter]

And they can operate without oversight from a large group of creditors who question every move made, especially when, as now looks quite possible, covenants in debt agreements are breached. Already, several changes have been made to Cedar Fair's debt to give the company relief from those covenants, with appropriate 'revisions' made to the interest rate in exchange. Put another way, the banks let the company have some breathing room, for now, but raised the interest rate on at least part of the outstanding debt.

[shark6495]

And they can operate without oversight from a large group of creditors who question every move made, especially when, as now looks quite possible, covenants in debt agreements are breached. Already, several changes have been made to Cedar Fair's debt to give the company relief from those covenants, with appropriate 'revisions' made to the interest rate in exchange. Put another way, the banks let the company have some breathing room, for now, but raised the interest rate on at least part of the outstanding debt.

sort of like asking the bank for a freeze on your loan for a few months, they tack the month to the end of the loan while still charging you the interest? just on a much larger scale?

[The Interpreter]

Sort of, but in this case the actual interest rate was increased, not just the term...

[shark6495]

some how that does not seem to be the best way to get rid of debt....

[The Interpreter]

Well, when you are facing a payment that MUST be made and you don't have the necessary cash flow to make it and/or there are terms in the loan as to what admissions levels must be, what per cap spending must be, what EBITDA must be (earnings before interest, taxes, depreciation and amortization)..and those terms are not being met, you take the best terms you can get that allow you to keep your company...

[shark6495]

so what happens if a company defaults on a loan such as this. I know if I default on my loan, my car is gone, and if I default on my college loans, my car can be taken as some sort of payment, but what about a park? would the company be forced to sell of assets?

[The Interpreter]

Six Flags defaulted on their loans...

[CoastersRZ]

Well, the company has stated that they were looking for potential buyers for Worlds of Fun and Valleyfair (which ironically is one of the two original parks and where the "Fair" in Cedar Fair came from) as a way to pay down some of their debt. However, given the current economic environment, they have so far not been able to find a buyer willing to pay what they deem a reasonable price for those properties.

Ultimately, if the Cedar Fair can`t meet the terms of their creditors, they may be forced into bankruptcy, not unlike Six Flags was forced to do. Obviously, Cedar Fair will try to do what they can to avoid having to go through bankruptcy. The economy will have to start improving next year in order for revenues to increase. Otherwise, they may be in more trouble than they already are in. After all, they have stated that they will likely suspend their cash distribution to unit holders in 2010 in order to pay down their debt levels. And as they stated in their last conference call, they continue to look at their cost structure and are continually looking to reduce their costs. One of the biggest variable costs that these parks have are labor costs, in the form of seasonal workers. So I would imagine that they will be closely watching their staffing levels to try and save as many nickles as they can in 2010.

[shark6495]

so they look at filing a chap 11 or something similar (what ever the equivalent of a company bankruptcy is) and then look to eventually expand? I need to open a company to mismanage millions of dollars

EDIT:

So why would a company buy other parks located with in their geographic region? ( I ask this not to get an accurate answer but more an opinion) If I owned a company and there was a competing company that was stealing my dollars I would buy em and then force them out eventually.....

[The Interpreter]

No. The company is trying to do everything possible to avoid bankruptcy. It is never the desired alternative...but rather something you usually get forced into when it happens.

As for your edit, some accuse Cedar Fair of doing exactly that with Six Flags Worlds of Adventure aka Geauga Lake. It is not exactly an efficient way of doing business, and probably was not planned to end the way it did.

[The Interpreter]

And for a short term, technical trader view, this at the Motley Fool blog, who says buy at 9, but sell at 8, see:

...Although there is not a major Wall Street brokerage following the stock has 1 buy and 3 hold recommendations with no sells or under performs. Analysts expect the stock to have an increase in both sales and EPS and be profitable in the coming year. Paul Price a contributor to Seeking Alpha has done several recent articles on the stock and I'm linking his article --

Cedar Fair : Growth Opportunities in Amusements for your review. http://seekingalpha.com/article/171589-ced...s-in-amusements

Over on Wall Street Survivor the Survivor Sentiment is 5/5 with a fundamental rating of 4/5. On Motley Fool the CAPS members think the stock will out perform the market 314 to 72 with the All Stars agreeing 76/23. Of the Wall Street columnist only Cramer disagrees but he hasn't said anything about the stock since all the way back in January.

Recommendation: Although FUN seems to have support based on its fundamentals and is expected to make a profit, I'm adding this stock to my speculative Marketocracy VMSLO portfolio solely on its technical price movement alone. Something is going to happen and I'm hoping for another price kick upward. Buy around 9 but have a protective stop loss around 8 in case nothing happens. Revisit that stop loss on a weekly basis and move it up to protect your gains....

http://caps.fool.com/Blogs/ViewPost.aspx?b...505727933042414

Note that from the time stamps on the articles, this one appeared an hour before the one putting Cedar Fair in the month's two "Going Broke Candidate"s

[Beast1979]

Let's all look at the bright side: Maybe after Cedar Fair goes belly-up Kings Island will be sold to a company that not only manages is money but also treats the park well in all aspects!

Or am I asking for to much?

[windshawne]

I would like to see KI go to single ownership, not part of a big chain. Bigger is not always BETTER. Worst case scenario, if this tax goes through, that will make it even harder to find a buyer.

[crazypkikid2005]

I can't help but love watching this company struggle. They are a dismal company that deserves every bit of their financial struggle.

[TTD-120-420]

So are they in worse or better condition than SIX? And wow CF gives you guys a giant B&M hyper and then you attack it.. Nice.

[The Interpreter]

Who is attacking Cedar Fair? Since when does stating facts constitute an attack?

One can love a park without loving the way it is run or managed. How it is managed may well end up affecting who owns the park and its future.

And as of this moment, Cedar Fair has far, far, far more debt than it appears that Six Flags will when it emerges from bankruptcy. But that's only because Six Flags declared bankruptcy...it has yet to emerge from that bankruptcy.

Six Flags also built many wonderful coasters, and bought many parks, going deep into debt to do so. The end result?

The point of the article cited originally is that unless something changes and changes radically, Cedar Fair may very well be headed down that same road.

[Coney Islander]

Couldn't Cedar Fair just stop spending money for a few years? It seems to me the parks are profitable enough to pull Cedar Fair out of this slump...

And I still don't understand why Cedar Fair closed Geauga Lake. From what I heard, Geauga Lake was not losing money, so why close it?

[The Interpreter]

How can Cedar Fair stop spending money? They are trying to cut costs...if you mean stop installing new rides, that would barely make a dent in the debt payments, about the same size dent that not paying out distributions is going to make. BUT, no new rides would almost certainly mean sizable attendance drops. I don't question their continuing to spend money on new rides. I do question the wisdom of their large coaster installations in a few parks each year. It is what Cedar Fair has always done. It is what they know how to do. But does it still work?

You don't see the current Six Flags doing that, and attendance trends at the two parks are almost the same...even though Six Flags was dealing with swine flu issues and the stigma of bankruptcy.

Time will tell...

[Beast1979]

And I still don't understand why Cedar Fair closed Geauga Lake. From what I heard, Geauga Lake was not losing money, so why close it?

Actually, it was loosing money. Fast. Not to mention that Cedar Fair didn't add one coaster....not one....to that park in the 4 years they owned it. Less and less people went to the park. It was increasingly obvious that Cedar Fair didn't plan on doing much with that park throughout the years, especially when they possessed an antique wooden coaster and added none of the Cedar Fair necessities: Trim Brakes, Seat Belts, Lap Bars, Seat dividers, and so on. While it's a tragedy, it's not that much of a shock.

What is a shock, is they decided to keep the waterpark open. "Hey guys, we closed you're favorite amusement park, the one you've known and loved for over 100 years, but we kept the waterpark open! Come enjoy the 2 month Cleveland summer at the same business that closed Geauga Lake! Buy season passes, and we might even add a ride or two!"

[pkimike]

This whole situation is confusing to me.

1. Is it true that CF made a profit in 2008 and is on pace to make a profit in 2009?

2. Is the problem mainly the debt covenants and the thought that they will miss one in the next few years?

I know that the sale of land in Canada helped in making a profit in 2009 but won't the decrease in distribution do the same thing next year and will actually be more than the $50 or so million that they made on that land. Also include the operating cuts they have made that will be in place all of 2010.

It just seems to me that if a company makes a profit they are ok. I know this is to simplistic.

[The Interpreter]

The company's current profit margin is 0.54%!

http://finance.yahoo.com/q/ks?s=FUN

And yes, the debt covenants are a MAJOR concern. It was the only way the company could get refinanced last time around. If the convenants (which are NOT public) are breached, the debt is due. Absent a renegotiation with the creditors, the debt must immediately be paid.