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Bankruptcy an option for cash-strapped Six Flags

NEW YORK (AP) — Shares of Six Flags Inc. touched a new all-time low Friday after the theme park operator said it could not meet a looming financing obligation and may have to file for Chapter 11 bankruptcy protection.

As the shares dropped, Moody's Investors Service cut the company's corporate family rating and probability-of-default rating by two notches to "Ca" — the second lowest — saying an out-of-court restructuring or a bankruptcy filing "is likely in the near term."

The New York-based company, in which Microsoft Corp. co-founder Bill Gates' personal investment fund holds a stake of more than 10 percent, said Wednesday in its annual report that a Chapter 11 filing is possible if it doesn't reach a deal to restructure its debt.

Six Flags shares, which have traded under $1 since September, dropped 3 cents, or 15.8 percent, to close at 16 cents after hitting a fresh low of 14 cents earlier in the session. The stock has traded between 16 cents and $2.50 during the past 52 weeks.

In its fourth-quarter earnings report on Tuesday, Six Flags said it does not expect to have enough cash to pay off its preferred income redeemable shares, or PIERS, when they mature on Aug. 15 and a total of more than $300 million will be due.

Six Flags said a Chapter 11 filing could occur well before August, if the company decides an out-of-court agreement is not possible or to its advantage.

PIERS holders include Gates' fund, Cascade Investment, which owned 500,000 of the shares as part of its much larger stake, according to a disclosure filing in February. A Cascade representative did not immediately respond to a request for comment.

The PIERS obligation has been an ongoing concern for Six Flags investors. The company has opted to skip the payments since last May to save cash, in part because unpaid dividends don't accrue interest.

On Friday, Moody's noted that failure to fund the PIERS redemption would qualify as a default under Six Flags' credit agreement, accelerating those payments and triggering a default on bonds issued by the company.

Last month, Fitch Ratings placed Six Flags on Rating Watch Negative as an issuer, citing concerns the company would not be able to make the PIERS payment.

A Six Flags representative did not return a call for comment on Friday. The company has scheduled a conference call with its investors before the market opens on Monday to discuss its fourth-quarter results.

Dan Snyder, owner of the National Football League's Washington Redskins, became the company's chairman and installed Mark Shapiro as chief executive in December 2005, following a proxy fight. According to a regulatory filing, Snyder owned nearly 6 percent of the company's stock as of last April.

Over the past 3 years, Six Flags has worked to boost revenue and reduce its debt, which ballooned as its previous management acquired a number of smaller, regional theme parks.

Under Shapiro, Six Flags has sold many of those parks and worked on revamping those that remained to lure families and discourage attendance by cash-poor teens.

On Tuesday, the company reported that its losses widened in the fourth quarter to $206.6 million, or $2.12 per share, as the company's income tax expense spiked.

The company's revenue gained, however, as quarterly attendance at its parks jumped 9 percent.

Chief Executive Mark Shapiro said in a statement released with the earnings results that Six Flags' three-year turnaround plan is paying off.

"The remaining challenge is the inherited balance sheet and we are in comprehensive dialogue with our lenders to remedy that issue," he said.

Six Flags owns 20 parks in the U.S., Mexico and Canada. In the past year, the company has sought to improve its profitability by expanding outside North America.

Last March, the company announced it is partnering with developer Tatweer Dubai, a member of the company Dubai Holding, to build theme parks across the Arab world, starting with a 5-million-square-foot theme park in Dubai.

In December 2008, the company said it would team with Oryx Holdings to open a park in Qatar by the middle of 2012.

 

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