Cedar Fair: Sale? Re-Finance? What Next?

[CrashOverRided]

From a recent Wall Street Journal article posted online, a VERY brief excerpt (subscription required for full reading):

...But the clock is ticking. Cedar Fair faces increasingly tight covenants on leverage later this year. The company already violated one covenant, in 2009, forcing it to suspend its cash distribution. Further violations could force it to raise cash by selling theme parks or other property at fire-sale prices....

http://online.wsj.com

(Article is titled: Fever Pitch Over Cedar Fair

By: John Jannarone)

exactly........avoid that B word

[Beast1979]

So...the deal isn't going through between Apollo and Cedar Fair....Q can not have a hostile takeover....and the idea of Six Flags and Cedar Fair together (Uhmm...no.) isn't possible anymore.....

Sounds to me like Bankruptcy is the last option remaining for Cedar Fair.

[The Interpreter]

No, there is refinancing. But at what rates? And what promises will be required?

And there are many, many ways Q could still end up with the company...but I don't give securities advice to non-clients on the Internets... Tis safer that way...

And a merger with Six Flags is still quite possible. Q just said it was "premature."

[CrashOverRided]

So...the deal isn't going through between Apollo and Cedar Fair....Q can not have a hostile takeover....and the idea of Six Flags and Cedar Fair together (Uhmm...no.) isn't possible anymore.....

Sounds to me like Bankruptcy is the last option remaining for Cedar Fair.

DOI you said it ....ouch

[The Interpreter]

If you think this only cost $6 (actually $6.5) million, that's probably not even the half of it:

* Legal fees to prepare the proxy.

* Accounting fees.

* Costs to defend the many lawsuits filed against the Board and Cedar Fair (and Apollo).

* The distraction from running the business.

and, perhaps most of all:

* The time lost that could have been spend finding real solutions to the company's problems, instead of pursuing a "pie in the sky" for management and $11.50 a unit for everybody else solution.

About which, an inside perspective from a litigator's viewpoint:

http://amlawdaily.ty...called-off.html

Very interesting way to look at things...I suppose.

Terpy, who can be wry (as opposed to being a ham on rye)

[Colonel_SoB_fan]

The best question of all, and the most worrisome....debt covenants were very close to being breached on December 31, 2009. New, stricter versions of those covenants were to kick in the next day. As only The Toledo Blade and The Richmond Register reported at the time, Cedar Fair apparently got relief from those covenants...relief that was probably conditioned upon the merger going through. Now it has not. What next?

See my previous post in this thread:

http://www.KICentral.com/forums/index.php?showtopic=20462&view=findpost&p=361048

Would the be the Richmond, Ky Richmond Register?

[The Interpreter]

It would be if I had my newspaper right! The correct name is The Richmond Times Dispatch in Virginia. Mea culpa!

Terpy, who spent more than a few years in Fayette County, Kentucky...and it shows....

[Colonel_SoB_fan]

It is all good Terp, I was just confused. Not like the Richmond Register to cover much outside of Madison County, none the less Cedar Fair which, as of now, has no parks or competition in Kentucky.

[The Interpreter]

Yep. The Richmond Register is owned by Community Newspaper Holdings now...not like them to be doing investigative reporting on a Sandusky, Ohio company with no local holdings in the Richmond, Kentucky market. I thought Times Dispatch but my fingers typed Richmond Register...not once but several times over time!

[The Interpreter]

...This leaves them with the distasteful task of having to refinance the massive debt, with around $700 million in maturities by 2012. This is going to happen only if the theme park sector in general, and Cedar Fair in particular, manages to dramatically improve performance over 2009.

Failing that, Cedar Fair will have two options – start selling individual parks in an effort to keep lenders at bay, or go down the Six Flags route. In fact, Q Funding has been approached by Six Flags for a possible merger between Six Flags and Cedar Fair.

Irrespective of which option Cedar Fair ends up with, it's still a big gamble to give up a deal to cash in when your neck is on the line, based on the thin hope that the economy improves.

http://travel-indust...apollo-no-sale/

[TH13TEEN]

^ Would that merger even be possible?

[Cory Butcher]

^ Would that merger even be possible?

Possible? Yes

Probable? No

[RingMaster]

Either way, if Q manages to get their hands on both Cedar Fair and Six Flags, or if CF remains in control of their assets, I foresee parks in our chain closing down regardless. They will have a choke-hold on their most profitable properties and may even drag those assets with them should CF go asunder.

I am not expecting this to end well in the long run...but then again, we're talking about a company that has had a very bad habit of not looking into the long run...

[The Interpreter]

As seems to be usual at The Toledo Blade of late, an excellent recap and analysis:

...Peter Crage, the chief financial officer, is to talk with the company's banks and lenders about "how we can improve our capital structure," she said. "We think the credit markets have improved. At this point in time we're focused on our capital structure and our 2010 operating season."

Jeff Thomison, an analyst with Hilliard Lyons Inc., said it's possible the "poison pill" plan and the Six Flags discussions are related.

"But I've never entertained the idea that there could be some kind of transaction between Six Flags and Cedar Fair...[ellipsis in the original] Although they're both amusement park companies, those two companies are not similar in any other respect."

...Cedar Fair now must figure out its next move, Mr. Hamann said. "I do think these guys do a good job of running the business," he said. "I'm just concerned about their balance sheet."

http://toledoblade.c...INESS03/4070347

If you haven't been keeping up, this is an excellent summary...if you have, there is also good analysis here.

[The Interpreter]

Unitholders Happy Over News Of Cedar Fair Deal's Demise:

..."I think it's a great day for Sandusky and unitholders," he said. "Finally the unitholders got a say in corporate America. The town voted no."

It wasn't just unitholders in Sandusky who were happy Tuesday.

Stephen Knott of Fullerton, Calif., is the grandson of Walter Knott, founder of the Knott's Berry Farm amusement park that's now owned by Cedar Fair.

Knott and his mother and brother own about 2 million Cedar Fair units.

"I'm very happy that it fell through," Knott said. "I felt that it would. I voted against it."

Leland Wykoff, a unitholder from Tennessee, served as the chairman of an unofficial meeting on the sidewalk March 16 after the special unitholder meeting at the Sandusky State Theatre was called off.

Wykoff said he's "very pleased" the merger attempt has ended.

"Management had positioned itself to get all of the upside of the deal," Wykoff said...

http://www.sanduskyr...ont/1998222.txt

[CedarPointer]

I can't help but think... we're screwed. At least we got two coasters out of CF...

[The Interpreter]

I would not say that. I would say this is a time of great uncertainty, and that no one, from Mr. Dick Kinzel to Mr. Geoffrey Raynor to Mr. Mark Shapiro really knows what will happen next. Somewhat ironically, much will depend on persons with names we do not know--bondholders and officials at large banks that have lent Cedar Fair the money it owes under conditions that get markedly tighter later this year...conditions that perhaps have already been violated...as of April 6, 2010 and perhaps retroactively to January 1, 2010. One would hope the company would have gotten some sort of relief from these conditions before agreeing to end pursuing the proposed merger...but with this company, one never knows...after all, they did appear to attempt to take an LP private under some very questionable procedures.

[Oldiesmann]

And now we learn exactly why the Knotts were so unhappy with the deal. When you're holding 2 million units, you definitely want to get every nickel you can for them.

[Lance Stevenson]

http://news.cincinnati.com/apps/pbcs.dll/article?AID=/AB/20100406/BIZ/4070314/

This means what exactly??.

[TH13TEEN]

^ That the merger is over. Apallo and Cedar Fair can no longer be BFF's.

[jrstacy98]

In the big picture, has Cedar Fair positioned itself to be more profitable? The final solution to many problems is better earnings (I won't pretend to know how much is the right amount), but look at the road map. Carowinds has gotten two new coasters in the last two seasons, one looking to draw more crowds in with the Nascar theming. Kings Dominion has gotten a decent coaster from Geauga, a kick butt coaster with I305, and some other rides from Geauga. Kings Island got DBack last year, World's of Fun got Prowler, Canada's Wonderland got Behemoth the year before. I'm sure I'm missing things, and they've also gone to more family friendly things with the light displays at CPoint last year, and other parks getting them this year. If the economy is really improving (and/or people's perception is it's improving) will higher attendance help Cedar Fair with it's debt issues?

Towards the bottom line, the dividend is currently gone, I'm a stock holder so while I do miss that, I think it should've been done sooner. I gotta think not licensing with Nickleodeon will save some big dollars (might take a year or two to realize)

Might a park or two be sold off? Possibly. Look up in the Mercury news for a recent article on CGA and the 49ers stadium.

I'm rambling but I'd like to think things aren't necessarily bleak.

[CrashOverRided]

In the big picture, has Cedar Fair positioned itself to be more profitable? The final solution to many problems is better earnings (I won't pretend to know how much is the right amount), but look at the road map. Carowinds has gotten two new coasters in the last two seasons, one looking to draw more crowds in with the Nascar theming. Kings Dominion has gotten a decent coaster from Geauga, a kick butt coaster with I305, and some other rides from Geauga. Kings Island got DBack last year, World's of Fun got Prowler, Canada's Wonderland got Behemoth the year before. I'm sure I'm missing things, and they've also gone to more family friendly things with the light displays at CPoint last year, and other parks getting them this year. If the economy is really improving (and/or people's perception is it's improving) will higher attendance help Cedar Fair with it's debt issues?

Towards the bottom line, the dividend is currently gone, I'm a stock holder so while I do miss that, I think it should've been done sooner. I gotta think not licensing with Nickleodeon will save some big dollars (might take a year or two to realize)

Might a park or two be sold off? Possibly. Look up in the Mercury news for a recent article on CGA and the 49ers stadium.

I'm rambling but I'd like to think things aren't necessarily bleak.

well thats kinda what we mean when we say CFs future is uncertain. at this point no telling what could happen.

[bkroz]

The reality is, closing a few of the parks (maybe, Michigan's Adventure, Great America, and Vallyfair) would save the company a lot of money and free up some incredible rides that could do absolute wonders at parks that are actually busy on a day-to-day basis. You know *I* wouldn't mind getting my paws on Valleyfair's suspended top spin, or some of Michigan's Adventure's waterslides for Boomerang Bay...

Then again, it's an attitude like that that closed Geauga Lake - seeing the not-so-grandly-performing parks as a waste of money & a waste of rides rather than what they really are: a tradition-filled, inspired, meticulously cared-for and cultivated family-favorite attraction...

In other words, while people at Kings Dominion may only know of Geauga Lake in passing and because of Dominator, for many of us here in Northeast Ohio, Batman: Knight Flight was the best thing to happen since sliced bread, and our summers are a lot different without it. Let's not forget that, should Valleyfair close, we may get a new ride, but many many lives will be changed. I'll never know how different my kids might've been if Geauga Lake would still be open in 15 years, and I don't know what I would be like had Geauga Lake closed 15 years earlier! Even small "under-performing" parks are incredible experiences for those who grow up near them.

[PREMiERdrum]

The reality is, closing a few of the parks (maybe, Michigan's Adventure, Great America, and Vallyfair) would save the company a lot of money and free up some incredible rides that could do absolute wonders at parks that are actually busy on a day-to-day basis.

Simpy closing parks will do nothing but hurt CF's bottom line. I have on good authority that those parks are still profitable. Look at what happened with Geauga Lake. The park was closed and razed, rides ripped out, and the land put up for sale. Still today it sits, costing CF money in (minimal) upkeep and tax obligations.

Then again, it's an attitude like that that closed Geauga Lake - seeing the not-so-grandly-performing parks as a waste of money & a waste of rides rather than what they really are: a tradition-filled, inspired, meticulously cared-for and cultivated family-favorite attraction...

Exactly. GL could have been "right sized" back down to what it was before Six Flags ill-fated flagging effort. Had CF not purchased the former Paramount Parks, I believe we'd have a Geauga Lake today that looked more like Michigan's Adventure, and a complimentary park to CP.

I hope and pray that the unitholders demand new leadership at the top. The industry has changed quite a bit and Kinzel&Co are still stuck in a very old and very dated business model.

When former Boeing CEO Alan Mulally took over as CEO of Ford a few years ago, he walked into a very similar situation. He looked at the product line and noticed that Ford actually lost several hundred dollars on every Focus they sold. They had to pad up margins on trucks and SUVs to offset the net loss they got on small cars. He inquired as to why they continued a product line that didn't make any money, and nobody was able to offer a decen answer. By operating that way, they were 1. Limiting the appeal of the Focus, keeping production constrained to relatively low levels as to keep the losses down, and 2. Limiting the appeal of the trucks and SUVs due to an inflated price point that had to be done to cover the losses on the car side. Sound familiar?

CF keeps gate prices low (and almost certainly low to a point of not covering the park's operation. They then inflate prices for in park purchases (food, drink, souvienrs) to cover losses at the gate. Now, one would argue that a few extra bucks per ticket wouldn't have a dramatic effect on attendance, and "discount" admission could then be lowered to the normal gate price now. Doing this would allow food and drink prices to be lowered to more reasonable levels and therefore encourage customers to eat another meal in the park, or buy more at each sitting.

Higher gate prices would also encourage more "season's pass" sales, and lower in-park prices would encourage these passholders to spend more in the park. Right now, passholders know better than to spend money in the park, since it's much easier to hop down Kings Island Dr and eat off property. If you give passholders incentive to spend their money in the park, they will.

[IBEW_Sparky]

Though I agree 100% with every single thing you said in your post, my only problem with any of it is this. With the mindset of the braintrusts in Sandusky, their version of "giving passholders an incentive to stay in the park" will be to impliment a season long "No re-entry" policy as opposed to ANY type of cost breaks whatsoever.

[bkroz]

Hahha! Too true! But yes you make some very good points newsguy, and I agree with them all! Again, I want to make it clear that my point, however convoluted, was meant to show that the smaller parks should not be thought of a a waste of rides the way that Geauga Lake was, but that the smaller parks are good at being smaller parks.

[PREMiERdrum]

Though I agree 100% with every single thing you said in your post, my only problem with any of it is this. With the mindset of the braintrusts in Sandusky, their version of "giving passholders an incentive to stay in the park" will be to impliment a season long "No re-entry" policy as opposed to ANY type of cost breaks whatsoever.

Good point! It's hard to sit by and watch such terrible decisions being made, while most of us have a much better grasp on positive changes that would both improve guest experience and the bottom line at the same time.

The old "captive audience" mindset (getting people thru the gate cheap then gouging them on in-park purchases) simply doesn't work anymore. The parks simply have too much competition, and the outrageous in-park prices factor into your guests planning. Most will still make their annual trip (for traditions' sake), but more affordable (or even offering a quality of food deserving of the high prices) out of pocket expenses once you're thru the gate would encourage return visits, or even "season's pass" sales; increasing per-cap increases and better overall guest experience (thus adding more positive word-of-mouth, friends and family coming as guests of passholders). All of these would be very marketable changes.

"Here at Kings Island, we know times are tough... and that's why we've made it more affordable than ever for families to enjoy a day of fun and excitement. Kings Island... your best value for family entertainment... just one more reason we're the FUN and only."

See? It's not that hard...

[KIfan1980]

This post is not an attempt to defend the company leadership in Sandusky - my opinion is that they have made some very poor decisions that have put their company and unit holders in a very bad financial situation. I hope that whoever is in charge of the company/parks going forward is able to manage a turnaround and future growth that will allow me to ride with my grandkids at KI in the (distant) future!

That said, pricing (of everything - from tickets/season passes to games, concessions, and everything) has to be one of the more complex and difficult strategic decisions that the Individual Parks and Cedar Fair has to make (if you ever watched "The Apprentice" you know the value Donald Trump placed on pricing right). It is also a decision that has to take into account what has been paid in the past and what people expect to pay for a certain item (ever known anyone who will only buy 2-liters when they are on sale for $0.99 at grocery stores, yet will pick up a 20oz soda at the gas station for $1.39?).

I believe that Kings Island admissions pricing is a good value (especially for Gold Passes) and I would probably pay more, but where is the break point? Add in some other factors: If Gold Pass price is high enough, I might upgrade to Platinum, but others might drop to a single admission only. Is a go-once guest more likely to spend more on food/merchandise versus a season pass holder. Food pricing on the other hand seems too high to me - I can't tell you the last time I bought a $3.50 bottle of water at KI (I think that was the price last year), but I purchased several $2.50 bottles at Dollywood on Monday - of course was I more likely to spend because it was a one time vacation trip versus a weekly trip to my "home park"?

I also wonder, who is the decision maker when it comes to admissions pricing at the park - Is that a corporate decision or a local responsibility? (and I know I set myself up for a Terpy "yes" response with that question, but will ask anyway)

[Cory Butcher]

The reality is, closing a few of the parks (maybe, Michigan's Adventure, Great America, and Vallyfair) would save the company a lot of money and free up some incredible rides that could do absolute wonders at parks that are actually busy on a day-to-day basis.

Simpy closing parks will do nothing but hurt CF's bottom line. I have on good authority that those parks are still profitable. Look at what happened with Geauga Lake. The park was closed and razed, rides ripped out, and the land put up for sale. Still today it sits, costing CF money in (minimal) upkeep and tax obligations.

Then again, it's an attitude like that that closed Geauga Lake - seeing the not-so-grandly-performing parks as a waste of money & a waste of rides rather than what they really are: a tradition-filled, inspired, meticulously cared-for and cultivated family-favorite attraction...

Exactly. GL could have been "right sized" back down to what it was before Six Flags ill-fated flagging effort. Had CF not purchased the former Paramount Parks, I believe we'd have a Geauga Lake today that looked more like Michigan's Adventure, and a complimentary park to CP.

I hope and pray that the unitholders demand new leadership at the top. The industry has changed quite a bit and Kinzel&Co are still stuck in a very old and very dated business model.

When former Boeing CEO Alan Mulally took over as CEO of Ford a few years ago, he walked into a very similar situation. He looked at the product line and noticed that Ford actually lost several hundred dollars on every Focus they sold. They had to pad up margins on trucks and SUVs to offset the net loss they got on small cars. He inquired as to why they continued a product line that didn't make any money, and nobody was able to offer a decen answer. By operating that way, they were 1. Limiting the appeal of the Focus, keeping production constrained to relatively low levels as to keep the losses down, and 2. Limiting the appeal of the trucks and SUVs due to an inflated price point that had to be done to cover the losses on the car side. Sound familiar?

CF keeps gate prices low (and almost certainly low to a point of not covering the park's operation. They then inflate prices for in park purchases (food, drink, souvienrs) to cover losses at the gate. Now, one would argue that a few extra bucks per ticket wouldn't have a dramatic effect on attendance, and "discount" admission could then be lowered to the normal gate price now. Doing this would allow food and drink prices to be lowered to more reasonable levels and therefore encourage customers to eat another meal in the park, or buy more at each sitting.

Higher gate prices would also encourage more "season's pass" sales, and lower in-park prices would encourage these passholders to spend more in the park. Right now, passholders know better than to spend money in the park, since it's much easier to hop down Kings Island Dr and eat off property. If you give passholders incentive to spend their money in the park, they will.

This was an excellent insightful post. I am glad you posted all this, so that I could take a break! haha

Are you sure you chose the right career by the way? That analysis and comparison is golden! I did a presentation and research piece on Alan Mulally last year and have to say that I noticed some of the same parallels but didn't really apply them in the way that you did!

[PREMiERdrum]

The reality is, closing a few of the parks (maybe, Michigan's Adventure, Great America, and Vallyfair) would save the company a lot of money and free up some incredible rides that could do absolute wonders at parks that are actually busy on a day-to-day basis.

Simpy closing parks will do nothing but hurt CF's bottom line. I have on good authority that those parks are still profitable. Look at what happened with Geauga Lake. The park was closed and razed, rides ripped out, and the land put up for sale. Still today it sits, costing CF money in (minimal) upkeep and tax obligations.

Then again, it's an attitude like that that closed Geauga Lake - seeing the not-so-grandly-performing parks as a waste of money & a waste of rides rather than what they really are: a tradition-filled, inspired, meticulously cared-for and cultivated family-favorite attraction...

Exactly. GL could have been "right sized" back down to what it was before Six Flags ill-fated flagging effort. Had CF not purchased the former Paramount Parks, I believe we'd have a Geauga Lake today that looked more like Michigan's Adventure, and a complimentary park to CP.

I hope and pray that the unitholders demand new leadership at the top. The industry has changed quite a bit and Kinzel&Co are still stuck in a very old and very dated business model.

When former Boeing CEO Alan Mulally took over as CEO of Ford a few years ago, he walked into a very similar situation. He looked at the product line and noticed that Ford actually lost several hundred dollars on every Focus they sold. They had to pad up margins on trucks and SUVs to offset the net loss they got on small cars. He inquired as to why they continued a product line that didn't make any money, and nobody was able to offer a decen answer. By operating that way, they were 1. Limiting the appeal of the Focus, keeping production constrained to relatively low levels as to keep the losses down, and 2. Limiting the appeal of the trucks and SUVs due to an inflated price point that had to be done to cover the losses on the car side. Sound familiar?

CF keeps gate prices low (and almost certainly low to a point of not covering the park's operation. They then inflate prices for in park purchases (food, drink, souvienrs) to cover losses at the gate. Now, one would argue that a few extra bucks per ticket wouldn't have a dramatic effect on attendance, and "discount" admission could then be lowered to the normal gate price now. Doing this would allow food and drink prices to be lowered to more reasonable levels and therefore encourage customers to eat another meal in the park, or buy more at each sitting.

Higher gate prices would also encourage more "season's pass" sales, and lower in-park prices would encourage these passholders to spend more in the park. Right now, passholders know better than to spend money in the park, since it's much easier to hop down Kings Island Dr and eat off property. If you give passholders incentive to spend their money in the park, they will.

This was an excellent insightful post. I am glad you posted all this, so that I could take a break! haha

Are you sure you chose the right career by the way? That analysis and comparison is golden! I did a presentation and research piece on Alan Mulally last year and have to say that I noticed some of the same parallels but didn't really apply them in the way that you did!

Thank you, Cory! I'm not sure about the career field question, since TV News picked me (as opposed to me picking it). I started an internship in 2005 at WSYX6 in Columbus at their assignment desk and was offered a job 2 weeks later. I've since "moved on up" to WBNS and still love what I do. I would, however, jump at a park Planning & Design or Marketing/PR position if one were to open up.

The frustrating thing is that the evidence of these problems, as well as the tools to fix them, are all painfully obvious.

A few weeks ago in the 5@5 note, they said that each office employee is supposed to visit the park with their family once a year and take notes of things that need changed, improved, etc. Which, in and of itself, sounds like a good idea. The problem is that the issues found in these visits are likely to be the super obvious ones anyway: "this line moves too slow," "this ride needs new paint," "this show wasn't very entertaining."

Why not require all of your area managers to eat at least one meal in the park per week, paid out of their own pocket? Would the Food Services Manager feel the same way about $4 Cokes if he had to spend his own money on one? Or, better yet, why not require your area managers to buy dinner for a random family of guests in the park once every week or two? This would get direct feedback straight from the guests to the manager, without being filtered thru comment cards or guest services. It would also go a long way in building goodwill between that family and their ideas about the park. I'm sure they would make a big deal to their friends, family, and coworkers about how much Kings Island "cares" about them.

The investment into those policies would be minimal (if at all), and the results would be invaluable.