Busch Gardens + Cedar Fair = WOW!

How debt works, or how credit card companies tell us it works?

I would wager the answer is the latter rather than the former.

I hope CF will focus on what they have. I know that many times when a company overbuy, the parks will suffer. I would like CP to keep growing. I keep hoping they put a coaster in that is like the Dominator! I like the cars much better then standing!

I do not think there is any chance that Cedar Fair will by the Busch parks. Many analysts however believe that the parks will be sold, and that InBev will only operate the core assets which are the breweries. The sale of the theme parks will help finance the purchase, which will put InBev 20+ billion dollars in debt.

An interesting article can be found here.

You guys really don't want your platinum pass to work in Dubai? It would be the perfect excuse to go there.

They should make an island in Dubai specifically for coasters. It could be shaped like Dick Kinzel's head.

I'm pretty sure I understand how debt works. You take on the debt and hope that you can repay it. If the price is right for the Busch parks, the buyer will be able to pay off the debt. Thus, it's fine to take it on. The only limiting factor is the ability to get the money, and CF can surely get a loan or two.

Here is a link to a site that tracks Disney as closely as we follow Cedar Fair...

http://miceage.micechat.com/kevinyee/ky071508a.htm

They make some very interesting points - I have never heard the part about...

"Cedar Fair was looking to buy land (maybe even had bought land) in the mega-theme-park size, down on west US-192. To give you an idea of where that is, draw a line from SeaWorld to Walt Disney World and extend that line beyond WDW a few miles. "

From what went down at Geauga Lake - you have to look at this as purely a business venture - so if it comes at the expense of a dry spell in terms of new rides for us - the increased cash flow from longer operating seasons and a possible ride location (or two) might make financial sense.

^^CF might be able to get "a loan or two", but I doubt it would be at attractive rates given the current balance sheet. The AB parks would have to be very profitable enterprises to service this new debt and provide some type of reasonable return to the shareholders. That's not likely.

If sold, these parks will become the property of some new player in the market or one of the current main players with a cleaner balance sheet.

I don't think you guys understand how Cedar Fair does capital expenditures. A new ride isn't installed because they feel like it or because someone looks at their checking account balance to see what they can afford this year. This company is nuts for calculating return on investment. If they think a new ride will have a certain effect on attendance and hotel booking, and that boost covers the cost of the ride, they'll do it.

They have historically operated the parks as autonomous units that have to self-sustain. They don't build a coaster at Worlds of Fun because Knott's had a good year.

MDOmnis said:
If they hadn't already overpaid for the Paramount parks and left themselves teetering on the brink of financial disaster,. . .

Honestly, I haven't grown any less worried about CF's future over thepast several months. I think they have not only a much bigger financial problem than they are leading their shareholders to believe,. . .

Actually, the Paramount Parks purchase seems to have accomplished one of its goals and INCREASED CF's financial stability:

". . . said Kinzel. “The newly acquired parks have provided us with the diversification that the Company desires in terms of both regional economics and weather patterns. We continue to see strength at Canada’s Wonderland, which introduced Canada’s longest, fastest and tallest roller coaster this year. Kings Dominion near Richmond Virginia, Carowinds in Charlotte, North Carolina and California’s Great America in Santa Clara, California have also performed well.”"

Without the Paramount purchase, CF would be highly dependant on CP & Knotts. Michigan, Ohio, & Southern California are not economic hot spots. As it is, CF can tap Northern Viginia and the Carolinas--both performing reasonably well economically--and Ontario, which is also performing well.

BTW, if you recall, CF has been able to make debt payments, capex and the distribution from cash flow. They are restrained in capex--unlike Six Flags--and SPEND WITHIN THEIR CASH FLOW. If their cash flow is flat this year they can make debt payments (and interest rates are going down which helps even more), make approx $88m in capex, and maintain the distribution. This is hardly "a much bigger financial problem than they are leading their shareholders to believe" or "teetering on the brink of financial disaster." In fact, geographical diversification seems to be saving them.

I understand that geographic diversity was a major benefit to the acquisition of the Paramount parks. Yes, Canada's Wonderland is having a great year and King's Dominion is having a nice year as well, but I still believe they overpaid and so do investors. Why else would their market cap which once was up around $2 billion be down to under $1 billion? Sorry, I know the markets have been going down pretty severely, but CF is down almost twice as much (40%) as the S&P (20%) in the last year. Cedar Fair thought they would be able to make the Paramount parks instantly more profitable by going in and doing things their way, sending a lot of good Paramount people to the street, and blatently ignoring most of what had worked in the Paramount markets before. Well that didn't exactly pan out and now they're freezing raises for employees, cutting budgets from departments, not stocking parts that will surely be needed to fix down rides, eliminating coffee, and probably sending more people to the street soon.

Jeff has a point when he says I confuse my dislike for how they run things with "financial doom." But who in their right mind would invest in a company that they think doesn't run things the right way? Poorly run businesses eventually end up financially doomed.

As for saying they're spending enough on capital expenditures, they're spending $88 million on 12 parks when in 2000, they spent over $100 million on 6 parks. Is that going to be enough to even maintain attendance let alone grow it? I'm not so sure. Double the parks and 8 years of inflation in there make $88 million seem like kind of a wimpy number - especially now that they don't have almost new shiny rides from Geauga Lake to spread around.

Based on their recent history, I certainly wouldn't want to see CF buy the A-B parks. Can you see it? Hmm, let's get rid of all those animals since they probably aren't much of a draw anyway. And what's with all this beer? Yep, that's gotta go too . . .

MDOmnis said:
I understand that geographic diversity was a major benefit to the acquisition of the Paramount parks. Yes, Canada's Wonderland is having a great year and King's Dominion is having a nice year as well, but I still believe they overpaid and so do investors. Why else would their market cap which once was up around $2 billion be down to under $1 billion? Sorry, I know the markets have been going down pretty severely, but CF is down almost twice as much (40%) as the S&P (20%) in the last year.

Of course, if you exclude oil companies--and apparently CF did not find oil under Geauga Lake--the S & P is down way more than 20%. MGM Mirage is down over 70%--are they going out of business? GE is down about 40% as well.

MDOmnis said:

Cedar Fair thought they would be able to make the Paramount parks instantly more profitable by going in and doing things their way, sending a lot of good Paramount people to the street, and blatently ignoring most of what had worked in the Paramount markets before. Well that didn't exactly pan out

Cash flow increased by 4% last year--DESPITE CF's management flaws.

MDOmnis said:
But who in their right mind would invest in a company that they think doesn't run things the right way? Poorly run businesses eventually end up financially doomed.

Unless, of course, the "poorly run" business watches it expendiatures vs revenues VERY carefully.

Look, I won't dispute that I'd run CF differently. BUT, CF watches their money carefully, invests prudently (i.e. not putting 4 new coasters into Geauga Lake), and does not gamble on perpetually increasing cash flows. Remember, THIS year's capex & distribution is based on LAST year's cash flow.

EBITDA for 2007 was $341m.

In 2008 CF plans to spend ~$145m on interest, ~$105m on the distribution, and ~$88 on capex.

$341-$145-$105-$88=$3m left over, assuming interest rates don't decrease and that revenue does not change.

If 08 cash flow decreases, then presumably capex and/or the distribution for 2009 will be adjusted accordingly.

MDOmnis said:
As for saying they're spending enough on capital expenditures, they're spending $88 million on 12 parks when in 2000, they spent over $100 million on 6 parks. Is that going to be enough to even maintain attendance let alone grow it? I'm not so sure. Double the parks and 8 years of inflation in there make $88 million seem like kind of a wimpy number - especially now that they don't have almost new shiny rides from Geauga Lake to spread around.

Apparently it is enough. Despite a tough economy, "attendance and in-park revenues were comparable to last year."

Also, without Six Flags building a gazillion coasters, CF can probably do just nicely with fewer new expensive coasters and more Renegades, cost $6.5m.

Good point about more Renegades. I'd take that $6.5 million dollar ride any day over the $25 million Dragster! :)

I sincerely hope they can pull through. I love the parks and I wish nothing but the best for the people still working at the company. I'm just trying to be realistic in saying that an awful lot of things have to go just right in order for it to happen.

InBev has said that they would divest themselves of all "non core businesses" in order to help finance the takeover. Need I say more.

Hmm maybe I should get a credit card and buy um? Na i like the sound of Disney's Discover Cove Better. I really don't Cedarfair could or would buy them now. I mean they took the animals out of Geauga Lake and look what happened. Taking the animals out Seaworld and the Gardens just wouldnt work. Plus Cedarfair has not done a spectaular job on keeping up on themeing once an attraction has been opend for a year.

I haven't seen any kind of composite look at the travel and leisure markets, but anecdotally looking at them, they all seem to be down well beyond what the market in general is doing. Airlines and hotel companies are sucking. If the sector sucks, so does Cedar Fair.

I've heard rumbles about Cedar Fair slimming its work force as well, which would be a horrible idea as they've already bled enough talent to last ten years. The internal concerns, as far as I can tell, have more to do with debt reduction than not meeting its obligations (the thing that Six Flags has done for more than a decade).

I'm unhappy with the way they run things, but the financial results seem to show success in spite of themselves. How long will that last? Beats me, but there haven't been any public signs indicating a reversal of fortune.

Jeff, they may turn out to be more than just rumbles, unfortunately. Cedar Point itself is said to be laying off quite a few workers in the coming weeks, apparently it was hinted at by several media sources in the NE Ohio area. I haven't personally looked into it as I'm only here for a short visit, but I would not put it past CF at all to initiate an action like that. No one is untouchable economically, and now the time has arrived when bigger companies are now feeling the hard pinch that we all did when the whole economy started its landslide.

Hey, I got let go, and I'm awesome. No one is safe. ;)

Captain Hawkeye said:
Of course, if you exclude oil companies--and apparently CF did not find oil under Geauga Lake--the S & P is down way more than 20%. MGM Mirage is down over 70%--are they going out of business? GE is down about 40% as well.

So what is it that is being pumped out from under the Geauga Lake parking lot, anyway? :)

(Cedar Fair didn't put the well there, they just put up the fence around the pump)

--Dave Althoff, Jr.