Bondholders settle dispute over confirmation of Six Flags reorganization plan

Bondholders agree on Six Flags reorganization

WILMINGTON, Del. — Bondholders who have been fighting over control of Six Flags told a bankruptcy judge on Wednesday that they have agreed on a revised Chapter 11 reorganization plan for the theme park operator.

Under the agreement announced in court after last-minute settlement negotiations, holders of junior notes issued by holding company Six Flags Inc. will assume control of the New York company. Six Flags owns 20 amusement parks across the U.S., Mexico and Canada.

Holders of senior secured notes issued by Six Flags Operations Inc., an operating subsidiary, would have received about 93 percent of the equity in the reorganized company under an earlier proposal. Under the new plan, the SFO noteholders will be paid $470 million in cash by the Six Flags Inc. noteholders to satisfy their claims.

Thomas Lauria, an attorney for the Six Flags Inc. noteholders, told Judge Christopher Sontchi in Delaware that all other creditors will be paid in full by the SFI group, which put together a financing package to offer its alternative plan.

“This is truly an extraordinary result,” Lauria said, referring to the twists and turns the case has taken since Six Flags sought bankruptcy protection in June 2009, burdened by high debt and declining park attendance by economically strapped consumers.

The fate of Six Flags chairman and Washington Redskins owner Dan Snyder, whose RedZone Capital investment group led a successful proxy fight for control of Six Flags in 2005, was not immediately clear.

Lauria said the bankruptcy parties have agreed on six people to sit on the new nine-member board, with three more still to be selected. The reorganization plan states that current CEO and former ESPN executive Mark Shapiro will be among the initial board members and will be entitled to appoint one other director. But it also states that Shapiro cannot appoint Snyder, who like other shareholders does not stand to recover anything in the bankruptcy, without the consent of the new owners.

Lauria indicated that a court filing identifying the new board members would be submitted before the reorganization plan takes effect, which he said could be as early as Monday.

The company’s initial reorganization plan called for a debt-to-equity swap giving secured lenders 92 percent of the reorganized company’s common stock.

After months of discussions with debt holders and secured lenders, Six Flags dumped its original plan and adopted one under which lenders owed more than $1 billion would be paid in full, and holders of the senior SFO notes 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 objected to the revised plan, which would have given them only about 5 percent of the new equity. They offered an alternative proposal that included more than $1 billion in new debt and an equity rights offering of $725 million, proceeds from which would be used to pay off SFO noteholder claims of $420 million and satisfy other creditors.

Under the agreement announced Wednesday, the recovery for SFO noteholders was bumped up to $470 million from $420 million.

“Peace has broken out,” said Lauria.

Six Flags attorney Paul Harner said it was important for the company to put the bankruptcy case behind it in advance of the upcoming summer operating season.

But not everyone was pleased with the settlement.

Shareholders led by Resilient Capital Management, who stand to get nothing, objected to the plan, saying it undervalues the company and wipes out stockholders, while allowing undeserved bonuses for managers who drove the company into bankruptcy but stand to acquire up to 15 percent of stock in the new company under an incentive plan.

Sontchi rejected Resilient’s challenge, saying it waited too long to raise its arguments and that, under any reasonable valuation of Six Flags, holders of common stock and the Preferred Income Equity Redeemable Shares, or PIERS, like those held by Resilient would be left out of the money.

“I find it implausible at the highest level that further delay will result in additional value to the estate, and additional value, or any value, to the PIERS or the other common equity in the case,” Sontchi said.

The judge also approved the management incentive plan, saying it is not an outright grant of stock to managers but a set-aside allowing for possible bonuses. The judge also said he believes Shapiro and his team have shown positive results and put the company in a position to be financially successful.