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Stark Led Bondholders Win Six Flags?


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A group of bondholders led by Stark Investments will take control of Six Flags Inc (SIXFQ.OB) under a proposal announced on Friday that would lift the theme park operator out of bankruptcy.

Under the proposal, which requires court approval, the Stark group will invest $725 million in new equity in Six Flags, according to the company's attorney, Paul Harner of Paul, Hastings, Janofsky & Walker.

Under the plan, bondholders will also borrow $1.1 billion. The money will go to pay off creditors and provide working capital after the company emerges from bankruptcy.

Under the proposal, management will have warrants and options worth up to 15 percent of the company's equity. The rest will be owned by the Stark group....

http://www.reuters.c...916902720100319

IF the court approves, Avenue Capital is apparently frozen out. This would apparently mean the Apollo deal to buy Six Flags after acquiring Cedar Fair is kaput in many more ways than one....

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The question is, is $1.1 billion a debt load that can be handled by the company?

Well, the company was larger than Cedar Fair at one point in time in the very recent past, and they would be dealing with about $500 million less debt. That would seem to say, with effective management and better park level efficiency, yes! Now, is that obtainable given the fact that past performance, which is never a good indicator of future results, has been rather poor? I wonder...

While management has tried to realign the parks as family friendly entertainment rather than a thrill seekers paradise, they have seen some positive outcomes, but a lot of operational inefficiencies remain.

I also do not like the fact that all summer last year, and the other summer before for that matter I did not see but maybe one corporate six flags commercial except for what was posted here.

As you ask any chef what the key to running a good restaurant is, he should tell you something along the lines of, "Cook good food and promote like mad." Six Flags in a great number of their markets have not done that. Cooking good food does not mean leaving what you think are bad dishes (rides and themed areas) off the menu (closing whole sections of parks for long periods). Busch Gardens doesn't do that, and Disney certainly doesn't. Freestyle Music Park has fallen into the same trap.

There is a point when cutting costs infringes on satisfaction and service. As there is a point when providing service (good or bad) at too high of a price point will lead to lower per caps...

Luckily some of these smaller parks are keeping this balance in check, and the industry can learn a lot from them, and will have to, in order to not survive but thrive.

Oh, and don't even get me started on the price of a pass to six flags valid at ALL of their dry amusement parks. Who ever thought that Six Flags consumers should enjoy all of their parks for the same price of entering Busch Gardens Africa (which thrives) for one day, and implemented that marketing strategy should rethink their career. Only furniture stores should have a loss leader.

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I don't know anything about the legal side of this or whatever, but as Cory said in his last paragraph, I always found it incredibly strange that a season pass good for all Six Flags parks is, what, under $100? It's goofy to say the least. I think that, in marketing all of their parks together ("More flags, more fun!") the individual identities were lost. I know Cedar Fair doesn't aspire towards name recognition (it's not "Cedar Fair's Kings Island") but looking back on the Paramount Parks, I would much prefer a commercial showcasing Kings Island's specific ride lineup than flashy images of generic rides that just ended with the Paramount Parks logo. I'm not sure what (or if) that has to do with the financial problems, but I'd think that it does.

It's a shame what used to go on at Six Flags parks, and it's spectacular that that's turning around - no more parking lot coasters, no more tremendous upfront investments with little follow-through, improved cleanliness, increased awareness of employee-customer relations... I'm happy for the way that the company has been changing on higher-up levels, and within each park. But I think it goes without saying that Six Flags owns too many parks for its own good. Remember the "Disney Decade," when Mr. Eisner decreed that each and every Disney resort on Earth would recieve a second gate? Now, see Disney's California Adventure (undergoing a $2 billion re-work), Walt Disney Studios Paris (opened with one E-Ticket attraction for the same price as neighboring Disneyland Park), even Disney's Animal Kingdom (with its Natahzhu promotion)... I think in many ways, the same can be said of Six Flags' untimely overexpansion.

Yes, companies have flagship parks, but to have over twenty parks and give enormous capital investments to three or four of them while trying to leave the rest under the guise of "small, family parks" isn't a wise way to go if you ask me. Sure companies play favorites, but Great Adventure / Magic Mountain / Worlds of Adventure vs. Kentucky Kingdom? It's a joke. So to market them all under the same taglines, same commercials, etc. seems a little off to me.

Here's something I wonder - I know that the Six Flags name is/was sort of synonymous with "low-quality" in the minds of enthusiasts... Does the general public agree?

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Although Mr. Snyder says he wants to buy stock and become an owner again, he is now, if the judge approves, officially frozen out as an owner...though, for now, he remains as Chairman....I doubt that lasts long, though. I suspect Mr. Shapiro will have far more autonomy than in the past, if he stays...Conventional wisdom says that he will....

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^ Which is what some of us here believed what would happen if the Apollo deal went through and they got their hands on both Cedar Fair and Six Flags...

There is a point when cutting costs infringes on satisfaction and service. As there is a point when providing service (good or bad) at too high of a price point will lead to lower per caps...

*cough*Kings Island*cough*. . .

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  • 2 weeks later...

Six Flags Amends Bankruptcy Plan:

... The newest plan leaves in place CEO Mark Shapiro and gives him the right to name another board member. However, he cannot name current Chairman Daniel Snyder without the approval of the new equity investors.

The plan also leaves in place Shapiro's proposed salary and bonuses, which both groups of bondholders criticized before the company adopted their plans.

Shapiro will receive an annual salary of $1.3 million, unchanged from his prebankruptcy base pay. He can also collect other bonuses including up to $3 million for bringing the company out of Chapter 11....

http://www.reuters.c...ype=marketsNews

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^ Which is what some of us here believed what would happen if the Apollo deal went through and they got their hands on both Cedar Fair and Six Flags...

There is a point when cutting costs infringes on satisfaction and service. As there is a point when providing service (good or bad) at too high of a price point will lead to lower per caps...

*cough*Kings Island*cough*. . .

Well they sure arn't getting ahold of Cedar Fair.

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This coming Friday is probable decision day for Six Flags control:

...Six Flags management supports the Stark proposal and has dropped support for a plan backed by bondholders led by Avenue Capital Group, Reuters said. Six Flags top management would retain their jobs under the Stark plan, Reuters said.

The agreement is expected to go before the bankruptcy court for approval on Friday, Reuters said....

http://milwaukee.biz.../12/daily1.html

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Friday's hearing (which may now be April 28) may get interesting:

http://www.prnewswir...g-90932064.html

Resilient Capital Management Files Motion in Six Flags Bankruptcy Proceeding

OBJECTS TO INACCURATE VALUATION WORK INTENDED TO SUPPORT MANAGEMENT TEAM'S INTERESTS AT EXPENSE OF PIERS AND COMMON SHAREHOLDERS

NEW YORK, April 15 /PRNewswire/ -- Resilient Capital Management, a holder of Six Flags Preferred Income Equity Redeemable Shares ("PIERS") notifies all PIERS (OTC Bulletin Board: SIXOQ) and common shareholders of Six Flags (OTC Bulletin Board: SIXFQ) concerning its Motion to Participate in the Confirmation Hearing (Premier International Holdings Inc., et al., Case No. 09-12019, Docket Number 1989) scheduled for April 28, 2010 which it filed last night in the bankruptcy court in Delaware. The motion can be accessed at http://www.kccllc.ne...00000000011.pdf.

In its motion Resilient highlights the valuation work performed on Six Flags by Amherst Capital Partners, L.L.C. - http://www.amherstpartners.com.

Amherst valued the company at a total enterprise value of $2,679,000,000. At this valuation the holders of the PIERS are entitled to approximately a 100% recovery or approximately $300 million. This compares to the current market capitalization of the PIERS of $2.75 million (SIXOQ closing price $0.25 per share - 11 million PIERS shares outstanding).

This contrasts sharply with the inaccurate valuation work performed on the company by Houlihan Lokey and Lazard Freres ( LAZ). These purported "experts" valued the company at approximately $1.5 billion only days before the SFI Bondholder group offered a deal which the market valued at between $2.3 and $2.5 billion.

The SFI Bondholders are poised to take over control of the company, having wrested control from the common shareholders by entering into a transaction which benefits management at the expense of the PIERS and common shareholders. According to Resilient's motion, "The valuation contest has been skewed such that it has been conducted within an artificial range defined by the parties with the resources to pay the costs of admission to the contest and by a management team with a more than $100 million vested interest in a particular outcome."

Lance Laifer, CEO of Resilient Capital Management said, "A cottage industry of lawyers is conspiring with management teams to take companies into bankruptcy and enrich management teams at the expense of the very shareholders they are supposed to be protecting and representing. This motion is about much more than just Six Flags. When a management team can take over a company, drive it into bankruptcy and then emerge with ten times more equity than it had prior to the bankruptcy filing, the system is seriously messed up and people - mostly individual investors - are losing massive amounts of money unnecessarily". Laifer continued, "We filed our motion at great expense, because we believe that real people are losing real money on the basis of faulty valuation reports. Resilient is committed to making sure we do our part to highlight and fix the problem that seemingly has developed in the Delaware bankruptcy court and corporate boardrooms throughout America."

Resilient's motion alleges a pattern of conduct by the SFI bondholders and the Six Flags management team, including the following:

  • The SFI bondholders managed to raise over one billion dollars of consideration at approximately a $2.5 billion valuation even though it was battling management at the time it raised the capital.

  • The lawyers and other professionals involved in this case are working off of a wrong valuation for the current deal on the table and that this incorrect and low valuation is being utilized to encourage the Honorable Judge Christopher S. Sontchi to confirm a plan of reorganization that is based upon an artificially low valuation that fails to address the points raised in the valuation performed on behalf of Resilient.

  • Based on Amherst's valuation, management is poised to achieve a $150-200 million jackpot for steering the company into and out of bankruptcy and wiping out shareholders. It also points to under-explored and under-examined pockets of potentially substantial value, including Six Flags TV and the value likely to be realized from Six Flags' licensing business.

  • The Debtor's management team is continuing to clearly violate its fiduciary responsibilities to the PIERS and common stockholders of Six Flags.

  • During March at the confirmation hearing, management stressed that the company was off to a poor start in 2010, which contrasts with a recent NY Post article in which Mark Shapiro stated that, "we're having a terrific spring right now."

This motion supplements an earlier motion made by Resilient which calls for a Trustee to be appointed to replace management -http://www.kccllc.ne...00000000004.pdf

Resilient is encouraging all shareholders of Six Flags to object to the Debtors' current plan of reorganization. Any such objections should be filed with the Delaware Bankruptcy Court at the following address:

Honorable Christopher S. Sontchi

United States Bankruptcy Court

District of Delaware

824 Market Street, 3rd Floor

Wilmington, DE 19801

T: 302-252-2900

Bankruptcy court in Delaware

To request more information or a copy of the Motion to Participate in the Confirmation Hearing scheduled for April 28, 2010 please contact Lance Laifer at laifer@gmail.com (Tel. 646-734-6657).

SOURCE Resilient Capital Management

Back to top RELATED LINKS

http://www.amherstpartners.com

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Lance Laifer, CEO of Resilient Capital Management said, "A cottage industry of lawyers is conspiring with management teams to take companies into bankruptcy and enrich management teams at the expense of the very shareholders they are supposed to be protecting and representing. This motion is about much more than just Six Flags. When a management team can take over a company, drive it into bankruptcy and then emerge with ten times more equity than it had prior to the bankruptcy filing, the system is seriously messed up and people - mostly individual investors - are losing massive amounts of money unnecessarily".

  • Based on Amherst's valuation, management is poised to achieve a $150-200 million jackpot for steering the company into and out of bankruptcy and wiping out shareholders.

Without fully understanding the situation- I have to admit that the statements that I emphasized strike a cord. Something doesn't seem right about the situation. I'd also guess however (and this may just be cynical), that the group that filed this motion isn't as altruistic as the filing makes it seem - after all, they are looking for their own jackpot.

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