Trial under way in dispute over confirmation of Six Flags reorganization plan

Trial begins on Six Flags reorganization plan

WILMINGTON, Del. — Six Flags Inc. on Monday began defending its proposed Chapter 11 reorganization plan, which would give holders of senior secured notes issued by its operating subsidiary more than 90 percent of the equity in the new company.

Holders of junior notes issued by Six Flags Inc. would receive only about 5 percent of new equity under the plan and have proposed an alternative that provides full cash recovery to other creditors and leaves themselves in control of Six Flags.

Six Flags, which owns about 20 amusement parks across the U.S., Mexico and Canada, sought bankruptcy protection in June 2009, burdened by high debt and declining park attendance by economically strapped consumers.

After months of discussions with debt holders and secured lenders, Six Flags dumped its initial reorganization proposal. It called for a debt-to-equity swap giving secured lenders 92 percent of the reorganized company’s common stock and allowed bonuses for top executives of up to $30 million upon emergence from bankruptcy.

In its latest revision, the reorganization plan calls for $830 million in debt financing and a $450 million equity offering. Lenders would be paid in full, and holders of senior notes issued by Six Flags Operations Inc. would receive about 25 percent of the reorganized company’s common stock, with rights to purchase an additional 70 percent.

Holders of SFI’s junior notes remain opposed to the plan. Last week, they announced a financing commitment of more than $1 billion from Goldman Sachs and UBS for their alternative proposal. Their plan includes $1.1 billion in new debt and a $582 million rights offering, proceeds of which would be used to pay the SFO noteholders, led by Avenue Capital Group, in cash instead of stock.

A key issue surrounding the competing reorganization plans are the enterprise values they put on Six Flags. Experts for Six Flags and the SFO noteholders peg the midpoint of the valuation range at about $1.5 billion. Experts for the SFI noteholders and Six Flags’ committee of unsecured creditors put the midpoint at close to $2 billion.

Under the valuations of Six Flags and the SFO noteholders, the company’s reorganization plan would result in those noteholders being paid less than the full value of their claims. Opponents of the plan argue that, because it is undervalued, the SFO noteholders will receive far more than the value of their claims.

Six Flags’ chief financial officer, Jeffrey Speed, the first witness called in a scheduled two-week trial, testified Monday that further delays in emerging from bankruptcy could have a significant negative impact on the company, which depends heavily on the summer vacation season for much of its theme park revenue.

“We believe the bankruptcy taint has not been good for business,” Speed said under cross-examination by Christopher Shore, an attorney for the SFI noteholders.

Speed noted that Six Flags conducts 80 percent of its theme park business is the second and third quarters, mostly in the June-August summer period. While a handful of parks opened last weekend, Speed said cash typically remains tight until the summer season kicks off on Memorial Day.

A delay in emerging from bankruptcy could affect sponsorship deals, group visits, and season pass sales, said Speed, who noted that, since the bankruptcy filing, Six Flags has seen a fivefold increase in calls from potential patrons, wondering whether its parks are open and safe.