Six Flags Park Sales May Be Soon

[The Interpreter]

From Bloomburg News Service:

Six Flags Debt Rallies as Turnaround Plan Wins Bond Converts

By Shannon D. Harrington and Josh Fineman

Oct. 20 (Bloomberg) -- Six Flags Inc. bond investors are gaining confidence in the amusement park company's plan to return to profit after eight years of losses.

Bonds sold by the second-largest U.S. theme-park operator have returned 3.91 percent this month, the most among the 14 companies in Merrill Lynch & Co.'s index of leisure industry debt, which increased 0.66 percent. Yields on Six Flags bonds are the lowest compared with similar-maturity Treasuries since July 25.

Chairman Daniel Snyder plans to sell six of the New York- based company's 30 properties and use the money to reduce debt to $1.6 billion from $2.1 billion. He has received half a dozen bids, said a person familiar with the situation who asked not to be identified because the results haven't been made public. Final offers may be submitted in early November, the person said.

``The market is expecting, and there's a better likelihood than not, that the asset sales go through,'' said John Maxwell, a leisure company debt analyst at Merrill Lynch in New York. He recommends investors own a bigger percentage of the bonds than are contained in benchmark indexes.

The company operates amusement and water parks in the U.S., including Great Adventure in Jackson, New Jersey, home to the world's tallest and fastest roller coaster, the 456-foot high Kingda Ka.

Yield Premiums Narrow

Six Flags' $503 million of 9.625 percent notes due 2014 have climbed to 93 cents on the dollar, up 3.5 cents since Sept. 26, according to Trace, the bond-price reporting system of the NASD. The yield has fallen to 11 percent from 11.7 percent.

The yield premium, or spread, over Treasuries fell 90 basis points, compared with 31 basis points for Merrill's broadest index of bonds with ratings below investment grade. The Six Flags 9.625 percent bonds now yield 6.25 percentage points more than government debt.

Six Flags, which has $1.92 billion of bonds, is rated Caa1 by Moody's Investors Service and B- by Standard & Poor's. Securities ranked below Baa3 at Moody's and BBB- at S&P are considered non-investment grade, or junk.

Credit-default swaps, or financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt, show the same trend. The price for contracts based on $10 million of Six Flags bonds traded as low as $580,000 on Oct. 17, 16 percent less than the $690,000 dealers were quoting on Oct. 2, according to data compiled by GFI Group Inc., a New York-based derivatives broker.

A decrease in price signals improvement in credit quality; an increase means the opposite. The five-year contracts, conceived to protect bondholders against default, pay the buyer face value in exchange for the notes should the company fail to adhere to its debt agreements.

Losing Money

``You're seeing an anticipation of an asset sale from Six Flags and that the asset sale will be announced sooner than later,'' said Leslie Finerman, a credit analyst with New York- based hedge fund BlueMountain Capital Management, which oversees about $3.3 billion. The reaction in the credit-default swap market ``is a little overdone,'' she said. ``The company still has a lot of problems and a lot of wood to chop.''

Six Flags, which ranks behind Walt Disney Co., has lost $884 million over the past seven years. A plan by former Chief Executive Officer Kieran Burke to sell the company failed last year. Attendance dropped 14 percent in the second quarter as Six Flags raised prices to keep out rowdy teenagers.

As of June 30, the company had more than $9 dollars in debt for every $1 it earned in profit before interest payments, taxes, depreciation and amortization, according to Merrill Lynch.

David Miller, an analyst with Sanders Morris Harris Inc., a Houston-based asset-management firm, said in a research report that if the company put a seventh property in Oklahoma up for sale, it would raise more than $750 million and meet its debt reduction target.

Reducing Leverage

Six Flags sent financial information to potential buyers in August. The six parks are in Los Angeles; Seattle; Denver; Houston; Concord, California; and Buffalo, New York. CEO Mark Shapiro said in June that he wanted to sell the parks within 24 months.

The parks the company plans to sell generate about $75 million in adjusted earnings, before interest, taxes, depreciation and amortization.

``We haven't yet concluded that we are in fact selling the parks and we continue to explore our strategic options in this regard,'' Six Flags spokeswoman Wendy Goldberg said.

Shapiro, a former ESPN sports-television executive, was named CEO in December. Since then, the company has spruced up the parks by banning smoking, replanting flower beds and spending $60 million to hire additional staff. The company is also adding more family entertainment, including daily fireworks shows and parades.

The company said visitors in the second-quarter spent an average $4.80 more each than a year earlier, an increase of 15 percent.

Karl Swanson, a spokesman for Snyder, 41, said the company's largest investor was traveling and couldn't be reached to comment. Snyder also owns the National Football League's Washington Redskins.

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