Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Cedar Fair Offering Too Much?

In a move that comes as a bit of a head-scratcher, Cedar Fair (NYSE: FUN  ) announced that it would be raising as much as $250 million in a secondary offering of its limited partnership units.

Don't get me wrong here. Cedar Fair can certainly use the money after agreeing to buy the entire Paramount Parks chain from CBS (NYSE: CBS  ) for $1.24 billion last month. The thing is that the company had also secured $2 billion in debt financing to seal that deal. Cedar Fair plans to use the money from the offering to partially repay the earlier debt financing.

Isn't stock financing preferable to taking on debt in these interest-rate-sensitive days? Sometimes. Not this time.

One of the primary attractions about Cedar Fair is its beefy quarterly distributions. The units are yielding a huge 7.1%, and during last month's conference call, company officials expressed their commitment to keep the chunky payouts coming. It's one of the reasons why Mathew Emmert was drawn to the well-run regional amusement park operator, recommending the units to Income Investor newsletter service subscribers last year.

So what's going on here? A company in Cedar Fair's position would be paying hundreds of basis points more through more conventional financing, but printing new units won't come free. It will still be on the hook for more quarterly distributions. So excuse me for blurring clarity with cynicism, but why is Cedar Fair diluting its unitholders and enriching the offering's underwriters?

I was at both the company's flagship Cedar Point park and Paramount's Kings Island park (a key park in the Paramount purchase) last week. I really like how the pieces will fit together and I will be back Thursday to elaborate on my trek through six amusement parks and four indoor water parks. I just don't like it when a high-yielding investment like Cedar Fair chooses equity over debt when the realized savings won't be as great as if a company like rival Six Flags (NYSE: SIX  ) -- with a yield of nil on its common stock -- were doing the same thing.

Want to get paid to invest? Mathew Emmert and other investors like you can show you how with a free trial toIncome Investor.

Longtime Fool contributor Rick Munarriz enjoys taking his family on coaster treks over the summer. He owns units in Cedar Fair. The Fool has a disclosure policy. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 514166, ~/Articles/ArticleHandler.aspx, 10/20/2016 4:11:30 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,184.10 -18.52 -0.10%
S&P 500 2,141.26 -3.03 -0.14%
NASD 5,245.82 -0.59 -0.01%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/20/2016 3:55 PM
CBS $56.61 Up +1.08 +1.94%
CBS CAPS Rating: ***
FUN $57.34 Down -1.06 -1.82%
Cedar Fair, L.P. CAPS Rating: ****
SIX $51.59 Up +0.22 +0.43%
Six Flags CAPS Rating: **