Six Flags Files for Chapter 11

http://online.wsj.com/article/SB124489639859012503.html

BUSINESS JUNE 13, 2009
Six Flags Files for Chapter 11
By MIKE SPECTOR

Six Flags Inc., one of the largest regional amusement-park companies, filed for bankruptcy protection Saturday.

The theme-park company, shouldering more than $2 billion in debt, had been negotiating with lenders, selling parks and laying off staff in a race to restructure outside of bankruptcy court. But it couldn't outrun the deteriorating economy and a looming $288 million payment due preferred shareholders this August, along with $31 million in unpaid dividends.

Six Flags hopes to exit bankruptcy quickly through a prearranged reorganization plan. It struck a deal with senior secured lenders that would allow it convert $1.8 billion in debt to equity.

The plan was backed by J.P. Morgan Chase & Co., the agent for the facility, and a steering committee of lenders, according to court documents. The support represents half the facility's obligations, the company said. The plan would also wipe out more than $300 million in preferred stock obligations.

Six Flags listed assets of $3 billion and liabilities of $3.4 billion, including $2.4 billion in debt at the end of March. Among its largest unsecured creditors were HSBC Bank USA with $400 million in bond debt and Bank of New York Mellon, holding more than $500 million in the company's debt.

The filing marked another highly-leveraged company falling victim to the deep recession. Six Flags' 20 parks dot North America, with operations in Chicago, San Antonio and Mexico City. Revenue in the first quarter fell 24% and the company delayed certain debt payments. Several of the park company's subsidiaries also filed for protection from creditors.

The Chapter 11 filing is a setback for investor Daniel Snyder, the Washington Redskins football team owner who took control of the theme-park company in a contentious proxy fight in 2005 and installed his own management team. The bankruptcy would likely wipe out Mr. Snyder's 6% stake.

In the midst of his battle to wrest control of the company, Mr. Snyder wrote a letter to Six Flags stockholders saying they "would have been better off hiding their money under a mattress" than investing in the company under its prior management.

"The current management team inherited a $2.4 billion debt load that cannot be sustained, particularly in these challenging financial markets," said Mark Shapiro, Six Flags' chief executive, in a statement. He said operations of the company's parks would be unaffected by the filing and that Chapter 11 protection was sought solely to "clean up the balance sheet."

Also losing out on Six Flags' financial rollercoaster: Microsoft Corp. founder Bill Gates, whose Cascade Investment LLC owned about 10.2 million shares, or an 11% stake. Other big equity holders include Dwight Schar, a Six Flags board member and part-owner of the Redskins alongside Mr. Snyder with a 5% stake; Citigroup Inc. with 9%; Barclays PLC with 6.7%; and hedge fund Renaissance Technologies LLC with 5.5%.

Six Flags warned earlier this year it could file for bankruptcy if it failed to reap concessions from lenders. Since April, it had been in discussions with lenders about a debt-for-equity swap, but failed to get enough takers.

A deadline for debt holders to swap certain notes for equity expired Friday night. Six Flags had extended that deadline by more than two weeks after falling well short of a 95% targeted acceptance rate.

Mr. Snyder's team, led by Mr. Shapiro, a former ESPN executive, had made some progress of late. Six Flags sold 10 parks and laid off about 300 workers. It tried to make its parks more family friendly, banning smoking in most areas.

Last year, Six Flags brought in more cash than it spent for the first time. Its losses narrowed in 2008 to $112.9 million, about half those of a year earlier. Sales nudge 5% higher to about $1.02 billion.

But last summer's record fuel prices, plunging consumer confidence and deteriorating credit markets weighed on Six Flags' balance sheet. The company lost even more money when the recent swine flu outbreak forced a temporary closure of its park in Mexico City.

A few months ago, Six Flags hired law firm Paul Hastings Janofsky & Walker LLP to prepare for a bankruptcy filing. It also hired Houlihan Lokey Howard & Zukin to negotiate with creditors.

Write to Mike Spector at mike.spector@wsj.com

Bankruptcy possibility looms for Six Flags

http://www.crainsnewyork.com/article/20090313/FREE/903139987

March 13, 2009
Bankruptcy possibility looms for Six Flags
In its annual report on Wednesday, the New York-based theme park operator company said a Chapter 11 filing is possible if it cannot reach a deal to restructure its debt.

(AP) - Shares of Six Flags Inc. fell Friday on growing speculation that the theme park operator may be forced to file for bankruptcy protection after the company said it could not meet a looming financing obligation.

Six Flags shares, which have traded under $1 since last September, lost 3 cents, or 16.8%, to 16 cents in morning trading. The stock has traded between 16 cents and $2.50 during the past 52 weeks.

In its annual report on Wednesday, the company said a Chapter 11 filing is possible if the New York-based company cannot reach a deal to restructure its debt. Chapter 11 bankruptcy frees a company from the threat of creditors' lawsuits while it reorganizes its finances.

In its fourth-quarter earnings report on Tuesday, Six Flags said it does not expect to have enough cash to redeem its preferred income redeemable shares, or PIERS, when they mature on Aug. 15. The shares, known as PIERS, must be redeemed for $287.5 million plus accrued and unpaid dividends, which may total up to $31.3 million.

If the company defaults on its PIERS maturity, it would constitute a default that would allow its lenders to demand payment on other financial obligations.

Six Flags said a Chapter 11 filing could occur "well in advance" of the PIERS's maturity in August, if the company decides an out-of-court agreement is not possible or to its advantage.

The upcoming PIERS obligation has been an ongoing concern for Six Flags investors. The company has skipped making its PIERS dividend payments since last May, noting that unpaid dividends accrue without interest.

Last September, Moody's Investors Services downgraded Six Flags' corporate family and probability of default ratings to a "Caa2" junk grade, saying it did not expect the company to have enough free cash flow or credit capacity to redeem the shares.

Moody's also expressed concern about Six Flags' $131 million senior unsecured notes, which mature in February 2010.

A Six Flags representative was not immediately available for comment on Friday. The company has scheduled a conference call with its investors before the market opens on Monday to discuss its fourth-quarter results.

On Tuesday, the company reported that its losses widened in the fourth quarter to $206.6 million, or $2.12 per share, as the company's income tax expense spiked.

Six Flags is the world's largest regional theme park company with 20 parks across the United States, Mexico and Canada. It plans to expand beyond North America with destinations in Dubai and Qatar, according to the company's web site.

Companies on S&P Watch List

http://money.aol.com/creditdebt/article/usa-today/_a/credit-crunch-puts-some-companies-on/20080324160309990001

Credit Crunch Puts Some Companies on S&P Watch List
By MATT KRANTZ, USA Today
2008-03-24

Homeowners aren't alone in struggling to keep up with their interest payments. As Bear Stearns' near-brush with bankruptcy shows, some companies also are dodging the repo man. Already this year, 24 public companies with assets worth $9.9 billion have filed for bankruptcy protection, BankruptcyData.com says. That's two-thirds higher than the defaults during the same periods in 2007 and 2006.

Things will likely get much worse. Bond watchers are braced for many more blowups as companies struggle with their debt loads and consumers cut back on their spending. Debt-rating agency Standard & Poor's expects at least 4.6% of speculative-graded companies to default by the end of the year, up from the 25-year low of 1.1% in January and above the historical 4.4% average, says Diane Vazza, managing director at S&P.

If S&P is right, that could mean as many as 74 additional defaulting companies within the next 12 months.

While nobody knows exactly which companies will default and which will turn themselves around, S&P's latest list of its "weakest links" shows companies that have the lowest credit ratings and face a strong possibility of additional downgrades.

Worldwide, there are 114 companies on the weakest-link list, the highest number in 16 months. And there are now 93 U.S. companies on the list, including some household names, such as Eddie Bauer, Sbarro, Guitar Center, Blockbuster, Six Flags and Linens 'n Things. The number of U.S. weakest-link companies jumped 13% from February through March, showing just how much strain some companies are under.

"We're on the first leg in the up-cycle of defaults," Vazza says. "The second half and in 2009, we're going to see a lot more deterioration. This is just the beginning."

There are some clear-cut trends among companies that are struggling the most, including those that:

Rely on consumer discretionary spending

Companies that depend on consumers spending money for non-essential items are most at risk as the economy slows, S&P says. Industries with the most "weak links" include entertainment, consumer products and restaurants.

One industry that really stands out is retailing. Consider Linens 'n Things, which sells home products. It is not publicly held and declined to comment for this story. But industry leader Bed Bath & Beyond cut its forecast for its fiscal fourth quarter ended in February. Bed Bath & Beyond has no long-term debt, unlike Linens 'n Things, which has $650 million, S&P says.

Another well-known retailer, Eddie Bauer, is on S&P's list. Last year, the seller of outdoor apparel lost $102 million on top of a $212 million loss in 2006. Eddie Bauer also carries heavy debt — more than $260 million, exceeding the $256 million of equity in the company, says S&P's Capital IQ.

Eddie Bauer is part of a trend that saw retailers boost debt by 31% the past year, says research from Marti Kopacz of Grant Thornton. Eddie Bauer did not return calls for comment. High debt is a heavy load for firms when shoppers are in a sluggish economy.

"You can buy fewer pillows and not eat out as many times," Vazza says.

But Robert Friedman, CEO of retailer Loehmann's, says being in a challenging business and having heavy debt shouldn't land his company on S&P's list. It's "uncalled for," he says. "We are not delinquent with any payments."

Carry heavy debt loads

Borrowing might have seemed like a sound idea when financing was cheap and easy to get, but companies that loaded up on debt now know it can bite hard when the economy slows and credit dries up.

When debt comes due, shakier companies that can't afford to pay it off may have trouble replacing it with new debt now that lenders have tightened up, says Jing Zhang, head of research at Moody's KMV. About $6.8 trillion in corporate loans and bonds come due this year, he says.

Just making payments on existing loans can be more onerous as business slows down.

Six Flags, the operator of amusement parks across the country, is attempting to turn around its business while carrying debt of $2.7 billion. "The debt is a problem," says David Miller, analyst at SMH Capital.

The suggestion Six Flags may be a candidate for bankruptcy any time soon is "silly," he says. The company has had a string of "biblically bad luck," including bad weather in many of its markets last year. While the company's debt load is large, it doesn't come due until 2010, Miller says.

Analysts expect the company's earnings to double in the third quarter, says Reuters Estimates. The company didn't return calls.

Heavy debt is also an issue at Blockbuster. The video rental chain's former parent company loaded it up with more than $1 billion in debt, says Michael Pachter, analyst at Wedbush Morgan.

But he thinks bankruptcy isn't a risk. The company's debt is down to $758 million, with just $44.7 million due this year and $56.5 million due next year, he says. Blockbuster is expected to generate at least $100 million in cash flow, more than enough to service the debt, so "The risk of default is nil in 2008 or 2009," he says.

Blockbuster also doesn't see imminent danger. "We expect to generate meaningful cash flow to return Blockbuster to profitability and be in full compliance with debt covenants," says spokesman Randy Hargrove.

Some blame private-equity firms for loading too much debt on companies they bought.

IAP Worldwide, a defense contractor owned by private-equity firm Cerberus, has $535 million in debt and is on S&P's list. But in an e-mailed response, Cerberus said IAP has been able to restructure its debt.

Face operational issues

Krispy Kreme is an example of companies on S&P's list that have had persistent problems in managing themselves profitably. Ever since the doughnut chain's accounting scandal in 2004 and 2005, it has been trying to turn itself around.

Aftereffects of the accounting mess coupled with too many new stores have put the company in a tight spot. It has lost money for 13-consecutive quarters, and Thomson Financial says analysts expect the company to lose money again when it reports fiscal fourth-quarter results April 7. Its stock has fallen more than 90% the past five years. Krispy Kreme has had a revolving door of executives and in January named a new CEO. A few months earlier, it said it would realign operations. Krispy Kreme declined to comment for this story.

But while some companies and industries face serious challenges both internally and externally, Moody's Zhang doesn't expect a serious default epidemic. "Default risk has been increasing," he says. "But the relative level is very low."