Monday, June 15, 2009

Avenue Capital Discloses Previously Confidential Six Flags Information

An odd PR disclosure came out of Avenue Capital today, which basically makes fully public information, that newly bankrupt Six Flags had considered to be confidential...until today. One Tyler Durden even asked a question of SIX CEO Mark Shapiro, at today's prearranged call specifically designed for bloggers, based on SIX creditor Avenue's just-released documents, which answer however left a little to be desired (in all honesty I would need to check on the transcript as at one point, during my Q & his A, I drifted off, more curious as to the color of MC Cabrera's sweater).

In a peculiar twist, the Avenue PR had this very odd language in it, which I have never seen before, especially when confidential information become public domain:
Under the Confidentiality Agreement, dated April 22, 2009, Avenue is entitled to disclose certain information if the Company fails to do so. While the Company has advised Avenue that it does not believe the information provided to Avenue on May 21, 2009 is required to be disclosed, is hypothetical and stale, Avenue is disclosing the information set forth in this paragraph and on Schedule 1. On May 21, 2009 the Company provided EBITDA information of $240 million, $265 million, $285 million and $310 million for the years 2010, 2011, 2012 and 2013, respectively, and capital expenditure information of $105 million for 2010 and $110 million for 2011.
Now what the basis of my question was, for those that may have missed the call (i.e., pretty much everyone), was the conclusion of the calculation on page 2, "Potential Liquidity Requirements - Fiscal 2009" analysis. An observation of either the Subtotal Liquidity Line of the Total Potential Operating Liquidity Line, indicates that the company will burn more cash than it will generate in 2009: either $50 million gross or $150 million net of minimum W/C liquidity. What is odd is that, as Zero Hedge noted, Six Flags entered in a prearranged bankruptcy without a DIP line in place.

This could be a very foolish proposition, as it effectively bets the future of the company on a speedy reorganization: if the prearranged bankruptcy process encounters a snag and the company discovers it needs additional sources of funding, it will not pass go, but will go straight to Chapter 7. Furthermore, in this still DIP constrained environment (but much looser than 5 months ago), it would not be surprising if the company did canvass for DIP interest but was unable to obtain one.

Now Zero Hedge shares Mr. Shapiro's enthusiasm for a speedy turnaround, but is concerned that this line of action could be myopic. As the bondholders end up getting crammed down and receive only 10% of the company, it is expected that one or several splinter groups will emerge threatening a quick turnaround, instead forcing a lengthy bankruptcy process. And if this information, which according to Avenue came from the debtor direct is accurate (and at first blush there is no reason to assume it isn't), then come December 31, Six Flags will be in dire need of $50 million dollars and no place where to obtain it. Of course, in a liquidation, the company's OpCo notes, which were trading in the mid 60's will have some difficulty generating any returns whatsoever.

All in all, this is quite a peculiar bankruptcy process, and Zero Hedge will follow this case with close interest, while focusing specifically on any marginal business pick up at the main competitor - Cedar Fair - which may end up benefiting from this process in more ways than one.
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