Q Funding asks for Cedar Fair to restore cash distributions to investors

Cedar Fair's 22-year winning streak of providing cash distributions to investors ended last year. It's time to begin a new streak, the company's biggest investor says.
Tom Jackson
May 13, 2010


Cedar Fair's 22-year winning streak of providing cash distributions to investors ended last year.

It's time to begin a new streak, the company's biggest investor says.

Q Funding, the Texas-based investor that owns about 18 percent of Cedar Fair's outstanding units, has written a letter to Cedar Fair's board urging the company to immediately resume cash distributions to unitholders and to pay at least 50 cents per unit.

The company, which made its letter public by filing it with the Securities and Exchange Commission, is asking other unitholders to join its call to resume the cash distribution.

"We believe a minimum of a $0.50 distribution is not only possible but also an absolute necessity and should be begun as soon as possible. The company owes this to the unitholders, many of whom made their investments based upon the distribution and who also need it to pay their taxes related to this investment," the Q Funding letter stated.

"The company has projected its Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) to be $320 to $340 million during 2010, which very closely compares to 2007 EBITDA of $340 million, a year when it distributed $1.90 per unit.

And the debt at the company as of year-end 2009 was actually lower than the debt level at the end of 2007 by close to $125 million," it stated.

"Put simply, it is hard to understand why the company could not make at minimum a $0.50 distribution per unit this year when it is projected to generate similar EBITDA and has less debt than in 2007 when it made a $1.90 distribution per unit. In our view, a very reasonable argument could also be made for a $1 distribution based on the company's own dividend history and relative performance," it continued.

Dick Kinzel, Cedar Fair's president, chief executive officer and chairman, said earlier this week that dealing with Cedar Fair's $1.6 billion of debt must be a top priority.

He said Wednesday he believes it makes sense for the company to consider resuming the distribution later this year, after it knows whether it had a successful season.

"We respect the opinion of all of our investors," he said. "We appreciate their interests and concerns."

The Q Funding letter brings up the debt issue.

"We understand that you may also desire to reduce debt, but we believe a $0.50 to $1 distribution would leave at least $60 million to $30 million of cash flow available to pay down debt based upon the company's public statements during the most recent investor conference call. This would still leave the company with less debt than it would have had under the board-approved Apollo Global Management buyout, which you and the management team were presumably comfortable with," it stated.

Randy Hunt, branch manager of Sandusky's Stifel Nicolaus office, said Q Funding's effort is "extremely positive" news for his many customers who own Cedar Fair units.

"If they put any dividend back in, it would make so many shareholders happy," he said. "It would show light at the end of the tunnel."

Q Funding III and a related company, Q4 Funding, own 18 percent of Cedar Fair's units. Both companies are controlled by Geoffrey Raynor, a Fort Worth investment banker.

Q Funding helped lead opposition to Apollo Global Management's plan to take over Cedar Fair. More recently, it persuaded Cedar Fair to agree to add two independent new members to its board.