Plagued by Debt, Six Flags Faces Its Own Wild Ride

Six Flags' revenue was up 5 percent last year, and attendance at its amusement parks increased 2 percent.
Six Flags' revenue was up 5 percent last year, and attendance at its amusement parks increased 2 percent. (By Linda Davidson -- The Washington Post)
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By Michael S. Rosenwald
Washington Post Staff Writer
Monday, April 13, 2009

Four years after waging a brutal proxy battle to become chairman of Six Flags, Redskins owner Daniel Snyder and his management team face a summer that could produce the kind of queasiness riders feel zooming around on the company's Superman roller coasters.

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."

There are two ways to do that, according to analysts and company officials. One is reorganizing in bankruptcy court. The New York firm, whose auditors have warned about its ability to remain a going concern, already hired bankruptcy lawyers. The other way -- the route Shapiro prefers -- is to engage in high-stakes negotiations with the company's bondholders to get them to swap the debt in exchange for equity. The deal on the table involves about $900 million in debt and $300 million in preferred stock.

Shapiro's strategy is to engage the debt holders in a deal by arguing that the operational turnaround shows the company has a future. Analysts say it could be a convincing argument. "Our take is the fact that the operational side is at least firing on more cylinders should give debt holders a reason to renegotiate and maintain a stake in this company," said Standard & Poor's equity analyst Eric Kolb.

Mike Simonton, an analyst for Fitch, agreed. "I do think this company has more of a capital structure problem than an operational problem, and as creditors look at their situation, they would see a management team that has delivered operating improvements in a challenging environment," he said.

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.

Fidelity officials declined to comment last week.

Simonton, the Fitch analyst, said 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.

Shapiro, for his part, said he thinks the bondholder wants a better deal. "You can't do a premium because none of the other bondholders would do a deal then," he said. He had a tough message to send: "The time is ticking for them. We are going to resolve the balance sheet once and for all, in court or out. They are going to get less if we do this in court. It's in their best interests to do this now."

Meanwhile, as Shapiro tries to navigate the balance-sheet troubles, it is also unclear how the economy will affect the company's 20 theme parks this summer. Although gas prices are lower than last year, millions of people have lost their jobs and consumer spending, particularly on discretionary items, has slowed. A recent Fitch report said a significant economic downturn could cause theme park attendance to fall by as much as 15 percent.

Shapiro is banking on many families opting for "stay-cations" -- vacations closer to home -- instead of traveling great distances. Six Flags is planning promotions and discounts to entice visitors, much like other theme parks. Disney World, for instance, is offering deep discounts, including free food for a five-day stay at Disney hotels.

Shapiro said his company has been encouraged that, so far, operational surprises have been few. He pointed to record spring break attendance at the Six Flags park in Dallas. "They are coming out and staying and spending, which is good," Shapiro said. He added: "But I don't want to jinx myself."

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