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Six Flags Shareholders Face Big Losses

By Thomas Heath
Washington Post Staff Writer
Tuesday, June 16, 2009

Washington Redskins owner Daniel M. Snyder and other Six Flags shareholders, including Bill Gates's Cascade Investment, are likely to see their shares wiped out as a result of the theme park chain filing for Chapter 11 bankruptcy protection over the weekend, according to a bankruptcy expert.

Snyder has chaired the company since winning a proxy fight with Gates's support in 2005, and he owns about 6 percent of the shares. Those shares are likely to be worthless as the company pays off more senior creditors in anticipation of issuing new shares.

"The stockholders will likely not get anything," said David Skeel, who teaches bankruptcy at the University of Pennsylvania Law School.

The 48-year-old Six Flags is reeling under the interest payments on $2.4 billion in debt. It is attempting to reduce that total by about $1.8 billion and eliminate more than $300 million in preferred stock payments due in August. The company has already reached some preliminary agreements with lenders in anticipation of a bankruptcy filing.

In filings yesterday with the Securities and Exchange Commission, Six Flags said $600 million of existing bank debt will remain as a debt obligation after the bankruptcy concludes, with the rest of the bank debt converted into new common stock. The company is seeking a $150 million credit line from lenders to provide liquidity when it comes out of bankruptcy, which is expected to last up to six months.

The company plans to issue new common stock as part of its restructuring, according to the filing. And it wants to keep much of its management team in place.

Snyder will remain as chairman and Dwight Schar, chairman of Reston-based homebuilder NVR, also intends to stay on the board, according to the filing.

A spokesman for Snyder referred questions to Six Flags.

Six Flags President Mark Shapiro said his management team signed four-year contract extensions in March. He said the company's lenders are seeking representation on the board of directors. The new board will have 11 members, seven selected by lenders, according to the filing.

"We are clearly receptive to that," Shapiro said. "They have equity, so they will want to have input."

Fitch Ratings yesterday reduced the company's debt rating from 'C' to 'D,' which is Fitch's lowest rating.

"We expect the equity to get cancelled," said Mike Simonton, senior director at Fitch Ratings. "The new stock will predominantly be held by lenders."

Simonton said it makes sense that the company's lenders want seats on the board. "It's not unexpected that the largest stakeholders will want a voice in how the company is controlled and managed going forward, in order to preserve their investment," he said.

Simonton said Six Flags was growing stronger under Shapiro, but the company could not get out from under its debt obligations.

"They reached close to break even on free cash flow last year, which was difficult given the high energy prices," Simonton said.

All 20 Six Flags parks throughout North America will remain open and do business as usual, Shapiro said. Six Flags has sought to create a more family-friendly atmosphere by adding new rides and attractions based on the Looney Tunes characters, skateboarding legend Tony Hawk and others.

The company drew 25 million visitors last year and in-park spending per customer has increased, although Six Flags has not turned a profit under Shapiro, largely because of interest payments.

The current economic climate, with unemployment above 9 percent, may make it difficult for Six Flags to increase revenues.

"We had a decent spring," Shapiro said. "Schools get out by the end of this week. Obviously, the economy with the state it's in brings uncertainty to the business, with overall discretionary spending down."

Skeel said the financial restructuring should have little impact on Six Flags customers.

"It you are going to Six Flags this summer, there's a very good chance you won't recognize anything different."

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