Monday, April 13, 2009

Six Flags' Fate Rests With Fidelity's $100 Million Bonds

The Washington Post out with a good expose on the non roller coaster-based freefall for Dan Snyder's Six Flags.

The firm, which announced last week that its stock was being delisted from the New York Stock Exchange, faces a more than $300 million payment to preferred stockholders in August that the company says it cannot afford. Fitch Ratings recently warned that a "default is imminent or inevitable." Its shares ended the week worth 26.6 cents.

Six Flags' debt troubles threaten to overwhelm the 48-year-old firm just as financial analysts and theme park reviewers say that Snyder's management team, which includes several former top ESPN executives, has largely turned around operations at the company's theme parks. Revenue was up 5 percent last year, even as the economy waned and gas prices soared through the summer. Attendance increased 2 percent.

But despite a turnaround in operations, Six Flags still needs to clear up more than $2 billion of long-term debt incurred by the firm's previous owners. And Six Flags chief executive Mark Shapiro knows that all too well. "We can't operate with this noose around our neck," he said the other day, walking around Six Flags America in Upper Marlboro as it prepared to open for spring break. "We need to resolve our balance sheet one way or another."

Easier said than done though: there is one party that can stall the entire process, leaving no other option for SIX than to file. The culprit: otherwise docile and benign mutual fund Fidelity, which in this case is enough of a vulture to make the Drexel guys of the 80's seem meek by comparison.

Six Flags officials said that nearly all of the bondholders support a debt-for-equity swap. That is, all but one. Six Flags executives have not publicly identified the holdout, but people with knowledge of the negotiations say that a Fidelity Investments fund owning more than $100 million in bonds due in 2010 has yet to come to the bargaining table -- a situation that if not resolved could force Six Flags into bankruptcy.
Why the stubborn approach? Mike Simonton of Fitch chimes in: "the holdout may be considering three scenarios. One is that Six Flags, which ended 2008 with $210 million in cash, will have enough cash to pay the more than $100 million in bonds that come due in 2010. Another scenario is that the bondholder has a credit-default swap -- essentially an insurance policy -- that would pay it a higher sum than an out-of-court agreement. Finally, Simonton said, the bondholder might think that a bankruptcy reorganization would be a better solution to the equity deal Shapiro is offering."

As Snyder points out, lately SIX has seen an operational pick up. How much of that is due to unemployed teenagers gawking and kibitzing at the various parks is debatable (and subject to verification: nothing like a diligence excuse to hit up the nearest Six Flags... if nothing, then to at least check if the price of hot dogs and coke is still stratospheric). But the article does bring up the point which Zero keeps harping on: how CDS holders have the potential to stall even the most determined out-of-court negotiations due to the asymmetric payoffs in the case of a chapter 11, although there are certain loopholes to this which SIX seems to be unaware of.

In the meantime, Six Flags is leaving little to chance, having hired financial restructuring advisors HLHZ. Ultimately, we hope Six and Fidelity finally get past talking to each others' secretaries and resolve this issue, as depriving the masses of unemployed Americans out of one their last enjoyable pastimes could escalate into civil unrest much more rapidly than any of the other red flashing signs that the economy is headed for total collapse with the blessings of a select few. Sphere: Related Content
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