FUN - Cedar Fair L.P.

[wolverine890]

At these prices FUN looks like a buy. They have a couple fundamentally different aspects that other travel/entertainment companies.

 

1) They are regional and host people from the surrounding areas. Very few theme park goers fly to get to their parks.

 

2) 50% of the companies profits come in the summer/fall. 

 

3) If they can maintain their dividend, you are buying a 10% yield when the Treasury is at <1%.

 

4) Six Flags recently tried to buy the company for $4B; Cedar Fair said, "no that price is too low."

 

5) All there parks are outside.

[spartansaver]

Based on your name, I'm guessing you're a Wolverine :). I'm slightly excited about this one as it is the Jewel of the midwest. Someone at my work (he's from New York) tried comparing Cedar Point to Six Flags... people just don't understand. I just wish the balance sheet was better. It looks like profits held up during GFC, but that balance sheet...

[wolverine890]

Hahaha, actually i am a comic book enthusiast, buckeye. :/

 

I have wanted to own this company since i was a boy for sentimental reasons. So i would agree with you whole-heartedly that there is something special about many of their parks when comparing them to six flags. I would also say the main reason i haven't ever bought them was my balance sheets concerns.

 

That being said, i think you can justify their balance sheet when you think of them as a toll road or rental property type business. There are very large up front cost to researching, developing and creating their rides; but once they are built they collect that toll for the next 30+ years. So it seems to make sense that you would want to take on those large up front cost via debt and then distributed the proceeds to your unit holders. the bulk of their debt is senior secured term, maturing in 24. The rate is LIBOR plus 175bps. So that seems good for them. The other 1.45B is at the high rate of 5.37% but they seemed to have no issues when they went to raise more debt last year. in 2018, i believe they bought all this down through interest rate swaps. So their current rate is like 4.5%, i believe.

[btgmf]

For disclosure, I own puts on FUN. I've been to Cedar Point a number of times and loved it. However, FUN stock is very likely going to zero.

 

The debt has a covenant of maximum 5.5 debt / EBITDA. Given the operating leverage in the business, if they lose even 20% of their business this year, their EBITDA will fall by more than half. And if they don't lose at least 20% of customers this year, I would be stunned.

 

If you want a comparable situation, read the 2003 annual report from Ocean Park, a theme park in Hong Kong: http://media.oceanpark.com.hk/files/s3fs-public/ophk_ar02-03.pdf. Here are some highlights:

- "The SARS outbreak...literally decimated our business"

- "The SARS outbreak in March transformed that picture, and for the last 100 days of the financial year, our unswervingly committed 'Ocean Park Team' opened the gates to an almost empty park"

 

There is no way FUN equity (obviously assets will still have some value for the debtholders) can survive visitors down 20%, let alone 100 days of no visitors. And this was SARS, a relatively minor scare, not (according to Bill Gates and basically every epidemiologist) a once in a generation pandemic similar to the 1918 Spanish flu. Not to mention that the US has been consistently about two and a half weeks behind Italy, which just put their whole country in lockdown for a month (at least).

[Guest roark33]

This is sort of absurd.  Unless there is a national-wide shutdown, Cedar Point's visitors are still going to come. 

 

First, most of their visitors drive to the park, not fly. 

 

Second, their demographics skew much younger than other, i.e. 14-50, the rides are very intense, so you don't have a lot of elderly people. 

 

Third (and I am from Ohio, so I will say this with love), lots of Cedar Point's visitors are huge Trump fans who probably think the corona virus is a hoax or a marketing thing for Corona beer. 

 

I am not saying it is a long, but the idea that the people who typically go to Cedar Point aren't going is probably stretched, to say the least. 

[oddballstocks]

I've been watching this, IB won't let me buy puts because it's an MLP in an IRA, but anyways.

 

I think this is 100% a timing issue.  If corona hits the parabola stage here in April/May then I can see a 20% decline in visitors.  Even Trump fans in Ohio (I'm from there as well, family still lives there and would self identify) has said "if this becomes like Italy or China we aren't going anywhere."  At the same time they believe it's mostly made up or overblown, and that Trump could lick it and not get sick, but I digress...

 

There's a second aspect to the timing.  The population that visits these parks is much slower to get the news and acknowledge it.  This is a significant holiday for them in most cases.  If places in the US cancel group gatherings in April/May that could trickle through until June/July etc.  I also agree that there is a significant portion of the visitors that are so clueless they'd still try to crowd the place even if it was declared a hazmat site, the "I don't care, it won't happen to me" crowd is strong at these places.  I'm saying this not to be mean, but as someone who visits these parks on an annual basis.  Someone pukes in the middle of the line?  People just shuffle a little around it, no big deal etc.  Puke on a car?  Throw some water on it and sit down..

 

On the other hand if this hits us here sooner rather than later and summer months are fine then I think it's a buy as well.  It's 100% timing.

 

If they weren't so levered I'd say it's a buy, but the leverage cuts both ways.

[btgmf]

This is sort of absurd.  Unless there is a national-wide shutdown, Cedar Point's visitors are still going to come. 

 

First, most of their visitors drive to the park, not fly. 

 

Second, their demographics skew much younger than other, i.e. 14-50, the rides are very intense, so you don't have a lot of elderly people. 

 

Third (and I am from Ohio, so I will say this with love), lots of Cedar Point's visitors are huge Trump fans who probably think the corona virus is a hoax or a marketing thing for Corona beer. 

 

I am not saying it is a long, but the idea that the people who typically go to Cedar Point aren't going is probably stretched, to say the least.

 

I think it's hard for anyone to adjust their frame of reference very quickly when something large changes about the world, but at this point -20% is a very optimistic case that has little chance of occurring.

 

Here are the relevant data points to me:

- Theme park in Hong Kong completely empty for 100 days after SARS (much worse than -20%)

- Theme parks closed by government fiat with coronavirus in China and Japan (much worse than -20%)

- The whole country of Italy closed for at least a month (much worse than -20%)

 

If you want a slightly different comp, look at Australian-traded Ardent Leisure. They had a ride that killed a few park visitors a few years ago. Attendance following that was -30% and EBITDA was zero.

 

To say with nothing but anecdotal evidence and stereotypes that "the people will come" is just lazy thinking. You can look at comps, and see that the comps all suggest enormous declines in visitors. If you have comps or other places that have experienced a pandemic and where theme park attendance has been minimally affected, let me know. Otherwise, I don't see how the right way to think about it isn't to default to past and current similar situations as the base case.

 

The US has been consistently about two weeks behind Italy. Also, our preparations have been the worst of any country excluding Iran. We have no chance of avoiding the same explosion of cases that has overwhelmed the hospital system in northern Italy (the richest part of Italy, which also has significantly more doctors per capita and beds per capita than the US). So we will have months of full blown pandemic and / or large scale quarantines. Either of those is going to cause much worse than -20%.

 

Saying people who go are Trump supporters is just lazy. My family is from Ohio originally. Ohio was 52 - 44 for Trump. And if you're correct about skewing young, that's obviously a much less pro-Trump demographic. And even if we say 60% of attendees are Trump supporters, an operationally and financially levered business still can't afford to lose much of the other 40%.

[Guest roark33]

Well, I think it is pretty easy, just mark down 20% decline in attendance and we will check back in 9 months.  I grew up going to cedar point, I will take the under on negative 20%....

 

 

[Guest roark33]

Local colleges, where I grew up and my brother still lives are starting to cancel school.  University of Toledo.  Guess where those kids are going, my brother has two kids in that school, one of whom is a huge trump supporter--the son--they are going to Cedar Point as soon as it opens. 

[alwaysdrawing]

Well, I think it is pretty easy, just mark down 20% decline in attendance and we will check back in 9 months.  I grew up going to cedar point, I will take the under on negative 20%....

 

Easy buy if you think so.

 

The stock is correctly priced to represent a % chance of massive problems.  If they come, it's a 0, if not it's worth a bunch more.

 

 

[Spekulatius]

Local colleges, where I grew up and my brother still lives are starting to cancel school.  University of Toledo.  Guess where those kids are going, my brother has two kids in that school, one of whom is a huge trump supporter--the son--they are going to Cedar Point as soon as it opens.

 

You mean the school is canceled due to concern about epidemic and the kids use the free time to go to a theme park? Way to go. .

 

I think we are one step from getting mass gathering restricted , which most likely will include theme parks. Large scale lockdowns  are strong  possibility in my opinion as well and they could easily be nationwide. US is huge, so less likely that the whole country is locked down than in Europe, but it’s still a non zero chance.

[Guest roark33]

Hey, I didn't say it was smart, but these colleges kids are adults, so I am just telling you what they are doing...but cedar point doesn't open till May 11, so still some time to see how this plays out. 

[Spekulatius]

Hey, I didn't say it was smart, but these colleges kids are adults, so I am just telling you what they are doing...but cedar point doesn't open till May 11, so still some time to see how this plays out.

 

Understood.I wonder if it is really true that only Democrats worry about the Corona  Virus and Republicans don’t give a damn? It’s not that simple, I know some Trump supporters who are very concerned (even before I was), because they frequently travel to Asia. One fellow self quarantined himself as early as January after traveling to Thailand, because he was afraid of infecting his family.

 

Or is this a coastal vs a middle country thing? Trying to wrap my head around the psyche here, because even after living here for mehr than 20 years, it continued to surprise me in many cases. My wife is immigrant to so she doesn’t understand everything either....

[Guest roark33]

https://www.nbcnews.com/news/us-news/young-people-capitalize-cheap-coronavirus-flights-if-i-die-i-n1154326

 

I am not sure it is an age thing or midwest thing. 

 

 

[bergman104]

Anyone else getting interested? As a fellow Ohio native I might be biased, but the price drop is pretty remarkable. Their balance sheet looks like a mess but I looked further into their debt. Correct me if I am wrong but $1B is due to 2024, 500 mil in 2027, and 500 mil in 2029. While not ideal, the have time to recover. 70% drop from it's high just seems pretty crazy. I'd be surprised if it doesn't head lower after DIS announced their own closing.  They have increased revenue almost every year since 1990 and same with dividend. Very surface level analysis but I'm at least interested to open a 10k for the first time in as long as I can remember

 

Edit: also saw that 3 directors bought shares from the open market today, and 6 others within the last week. Roughly 30,000 shares total

 

 

[mbreject]

Knotts ( their biggest park in terms of attendance ) will be following Disney's suit and will temporarily close to at least the end of March. https://twitter.com/knotts/status/1238476665698824192/photo/1

[minten]

And this was SARS, a relatively minor scare, not (according to Bill Gates and basically every epidemiologist) a once in a generation pandemic similar to the 1918 Spanish flu.

 

Not sure I agree with SARS being minor compared to COVID. Yes, SARS was (in hindsight) a relatlvely minor scare on a macro-level, but not on a personal level. If you got SARS, you had a 10% of dying (not sure, but if I remember correctly it was also initially reported to be much more deadly than it actually was).

That's at least several times more lethal than COVID even in a worst case scenario. And besides, COVID is pretty much framed as a virus that mostly attacks old unfit people anyway. So, I can imagine the SARS-scare then being a lot more pronounced than the COVID-scare now.

 

But then again, if the epidemic really blows up in the region (as of course it might), FUN is likely gone. I think we can agree on that.

[bergman104]

For disclosure, I own puts on FUN. I've been to Cedar Point a number of times and loved it. However, FUN stock is very likely going to zero.

 

The debt has a covenant of maximum 5.5 debt / EBITDA. Given the operating leverage in the business, if they lose even 20% of their business this year, their EBITDA will fall by more than half. And if they don't lose at least 20% of customers this year, I would be stunned.

 

If you want a comparable situation, read the 2003 annual report from Ocean Park, a theme park in Hong Kong: http://media.oceanpark.com.hk/files/s3fs-public/ophk_ar02-03.pdf. Here are some highlights:

- "The SARS outbreak...literally decimated our business"

- "The SARS outbreak in March transformed that picture, and for the last 100 days of the financial year, our unswervingly committed 'Ocean Park Team' opened the gates to an almost empty park"

 

What happens if they break the covenant of 5.5 debt/ EBITDA? The debt then becomes due? Fine?

 

There is no way FUN equity (obviously assets will still have some value for the debtholders) can survive visitors down 20%, let alone 100 days of no visitors. And this was SARS, a relatively minor scare, not (according to Bill Gates and basically every epidemiologist) a once in a generation pandemic similar to the 1918 Spanish flu. Not to mention that the US has been consistently about two and a half weeks behind Italy, which just put their whole country in lockdown for a month (at least).

[5xEBITDA]

I am waiting for the debt to be 40-50 cents before buying this.

[DTEJD1997]

Hey all:

 

If the opening of Cedar Point is significantly put back this year, I wonder if the park will stay open a bit later in the year?

 

I also wonder if the Halloween/haunted house trade will be bigger this year?

 

If FUN takes these steps, it won't make up for what happens.  It might make a catastrophic year into one that is just "very bad"?

[TBW]

This presents an interesting thought I have been thinking about in regards to other companies.

 

I think 20% down is pretty conservative guess for the hit they take in attendance.  And I think tripping covenants seems likely, but does that matter?  For example, I have looked a lot at AMC.  I think they will almost certainly trip their 6.5x leverage covenant this year due to the virus.  However, in a normalized world their leverage would be more like ~4.7x.  So is the bank really going to mechanistically shut the company down due to a covenant breach during a pandemic?  I am not sure, still thinking about this, but I would think they wouldn't.

 

For FUN, this is also my thinking.  They, like AMC, have termed out their debt so there isn't any big amount due that they can default on.  I think you need to consider if they can cover interest costs in the worst case.  For AMC I am still not sure.

 

During the GFC there was come companies that filed even though they were fine, but cause their debt was due when the market froze.  Most others were able to work with lenders.  In this situation, I think there may even be govt support for banks to help get companies over any such bumps.

 

That said, FUN looks cheap at 1x sales with over 10% net margins, but not crazy to me.  I would rather buy CNK the movie theatre chain at 20% FCF yield with less leverage which the market is scared will be hit hard.

 

Any other names where there is covenant concerns?  Looking for more situations like this.

[DTEJD1997]

This presents an interesting thought I have been thinking about in regards to other companies.

 

I think 20% down is pretty conservative guess for the hit they take in attendance.  And I think tripping covenants seems likely, but does that matter?  For example, I have looked a lot at AMC.  I think they will almost certainly trip their 6.5x leverage covenant this year due to the virus.  However, in a normalized world their leverage would be more like ~4.7x.  So is the bank really going to mechanistically shut the company down due to a covenant breach during a pandemic?  I am not sure, still thinking about this, but I would think they wouldn't.

 

For FUN, this is also my thinking.  They, like AMC, have termed out their debt so there isn't any big amount due that they can default on.  I think you need to consider if they can cover interest costs in the worst case.  For AMC I am still not sure.

 

During the GFC there was come companies that filed even though they were fine, but cause their debt was due when the market froze.  Most others were able to work with lenders.  In this situation, I think there may even be govt support for banks to help get companies over any such bumps.

 

That said, FUN looks cheap at 1x sales with over 10% net margins, but not crazy to me.  I would rather buy CNK the movie theatre chain at 20% FCF yield with less leverage which the market is scared will be hit hard.

 

Any other names where there is covenant concerns?  Looking for more situations like this.

 

I have been doing some thinking about this in regards to FUN and some other companies.

 

This corona virus is quite a bit different than 2008 and the GFC.

 

Are some people/companies with too much leverage going to get hit and take some losses?  No doubt.

 

Are some companies that have WAY too much leverage and is has poorly structured debt going to go BK and restructure?  No doubt, certainly.

 

Are some weak companies going to go under?  For sure.

 

On the other hand in NW Ohio and SE Michigan, Cedar Point is well known, well liked, and almost an institution.

 

I think there is going to be TREMENDOUS pressure on lenders to work with creditors.  Everybody is going to have to pay their bills/due, but I think the government will pressure banks to work with creditors (within reason).

 

If things get to the point where a lot of companies have their shareholders getting wiped out in BK, things are going to get very bad in this country.

 

There are still a LOT of people who have not recovered financially from the GFC.  If we go through something like the GFC, or even worse, there is going to be a LOT of social disruption.  Pension funds will go bust, or have severe stress.  Lots of towns & cities will be in "super duper bankruptcy".  A lot of places have SEVERE pension problems going into this crisis.  If markets go down 50%+ with lots of BK, then they will be done.

 

You will also have problems with legacy pension problems at companies such as GE and others.  You will have problems with banks & insurance companies.

 

Then you've got the real estate problem.  In some areas of Detroit, prices for residential are even higher than it was in 08. 

 

Then you will have unemployment.  If unemployment climbs significantly, what about student loan debt?  and on and on and on. 

 

There are going to be a lot of 2nd and 3rd order effects.

 

I think the government will do EVERYTHING in it's power to provide liquidity and prevent mass BK.

[5xEBITDA]

There will be many creditors who can play the amend and extend game with their lenders when they run into covenant problems due to the virus. There are also lenders out there who will force the Company into bankruptcy to get the equity :)

[alwaysdrawing]

I have been doing some thinking about this in regards to FUN and some other companies.

 

This corona virus is quite a bit different than 2008 and the GFC.

 

Are some people/companies with too much leverage going to get hit and take some losses?  No doubt.

 

Are some companies that have WAY too much leverage and is has poorly structured debt going to go BK and restructure?  No doubt, certainly.

 

Are some weak companies going to go under?  For sure.

 

On the other hand in NW Ohio and SE Michigan, Cedar Point is well known, well liked, and almost an institution.

 

I think there is going to be TREMENDOUS pressure on lenders to work with creditors.  Everybody is going to have to pay their bills/due, but I think the government will pressure banks to work with creditors (within reason).

 

If things get to the point where a lot of companies have their shareholders getting wiped out in BK, things are going to get very bad in this country.

 

There are still a LOT of people who have not recovered financially from the GFC.  If we go through something like the GFC, or even worse, there is going to be a LOT of social disruption.  Pension funds will go bust, or have severe stress.  Lots of towns & cities will be in "super duper bankruptcy".  A lot of places have SEVERE pension problems going into this crisis.  If markets go down 50%+ with lots of BK, then they will be done.

 

You will also have problems with legacy pension problems at companies such as GE and others.  You will have problems with banks & insurance companies.

 

Then you've got the real estate problem.  In some areas of Detroit, prices for residential are even higher than it was in 08. 

 

Then you will have unemployment.  If unemployment climbs significantly, what about student loan debt?  and on and on and on. 

 

There are going to be a lot of 2nd and 3rd order effects.

 

I think the government will do EVERYTHING in it's power to provide liquidity and prevent mass BK.

 

Why do you think shareholders will be bailed out?  If the gov't provides loans, will that make them profitable? 

 

Who knows how long this storm will take to weather, and how many businesses will be affected. 

 

I don't think theme parks are high up on the strategically important employer list.

[Spekulatius]

I am waiting for the debt to be 40-50 cents before buying this.

 

That would be a deal. Even if  FUN goes bankrupt, the underlying asset is sound and it will recover, even though it may take time.