Six Flags credit rating downgraded to deeper junk status

http://www.forbes.com/feeds/ap/2008/09/25/ap5473234.html

This kind of downgrade is what ultimately sped up the fall of Lehman Brothers, along with the need to bail out AIG by the government. Those companies were financial giants, something Six Flags is not close to.

If they couldn't survive a cut in their credit ratings, how is Six Flags supposed to?

Six Flags is operating on credit, though they made their first profit ever they cannot afford to lose their huge line of credit. With the credit markets freezing up, it appears to me that a downgrade for them would lead the bank to being very nervous about the company's performance.

The company may be forced to liquidate assets, something that proved difficult for Shapiro when he tried to sell off Magic Mountain a few seasons back. They were able to sell the assets they wanted, save for SFMM, and now may be forced to sell other assets they feel are key to their success, whatever they think those properties are.

The bank also will not care that the parks will be operating on weekend schedules until Spring Break, if they are open at all.

Now is not the time to be carrying such a huge debt on the balance sheets. It was 4-6 months ago that Six Flags refinanced part of the debt that was coming due in the next couple years; but if I recall, the new interest rate was ~12%. Hard to pay off debt at that rate. I've thought for over a year that Six Flags will have a hard time avoiding restructuring under bankruptcy protection. That is why I've avoided SIX stock, even with it trading at ~$1 per share, and at one point, each reaching ~$0.25. Shapiro is making the right moves in trying to turn the company around. Unfortunately he took control of the Titantic right before it hit the iceberg. In this tough economy, the weak companies will have a hard time surviving. Still you should be careful comparing a business like Six Flags to major banking instituitions. The businesses are totally different and are facing some simliar, but mostly different, challenges.

After I posted this, Washington Mutual became the biggest bank failure in the history of the world. The news was but a blip on Larry King. Extraordinary times.

Even in this economy debt isn't necessarily bad. The inability to repay debt is however bad in any economy. However if Six Flags does not go cash flow positive this year as they claimed, this could end up being the final straw to break the camels back so to speak. So far all of the atrractions announce so far for Six Flags parks seem to be cheaper and safer bets than things they had done in the past. They are using as little capital as they can even at the 'flagship' parks for 2009 as they can. I think as long as they can stay cash flow positive they will be just fine. If they go back in the red (cash flow negative) we might be revisiting whether Six Flags as a company can survive.

Magic Mountain is getting a new coaster for 2009, highly doubt they would invest in a park they plan on liqidating

Six Flags has cash flow, so they should be fine in the near future. Of course the parks need to turn in profit to get a creditline. I would not spell doom for all of there parks. Will they restructure eventually? Possible! But i would not say that Six Flags will be gone in a year or two

Plus is Bill Gates not a stockholder? Mark Shapiro just has to make one call and all the problems would be gone...(being sarcastic here)

AlexInLA said:
Magic Mountain is getting a new coaster for 2009, highly doubt they would invest in a park they plan on liqidating

Six Flags has cash flow, so they should be fine in the near future. Of course the parks need to turn in profit to get a creditline. I would not spell doom for all of there parks. Will they restructure eventually? Possible! But i would not say that Six Flags will be gone in a year or two

Plus is Bill Gates not a stockholder? Mark Shapiro just has to make one call and all the problems would be gone...(being sarcastic here)

SFMM's addition of a coaster for 09(which is the worst thing they could do right now) has little to do if wether or not that park goes on the chopping block.The addition of the new ride could just as easily be used as window dressing to help sell the park to a potential buyer after all.

I think we'll be looking at the sale of all of the parks save for the Dallas & Atlanta locations within the next year or two unfortunately.

I think you can add MM on that no-sale list as well. I wonder who would snag SFNE? CF doesn't have a presence in the NE market, save for a few DIE HARD CP fans out there. :)

debt load or no, CF would KILL to own SF Great America

People need to realize that there is a big difference between a company filing for bankruptcy and going out of business. A company may file for bankruptcy, undergo reorganization, restructure its debt and then re-emerge as a leaner, stronger company. Given SF's debt load, bankruptcy may occur in the future. However that doesn't mean the company is gone forever. The latter would seem unlikely. Granted SF did show positive earnings in the last quarter, however this was after many years of losing money each quarter. I don't see SF selling off parks at this time, since I doubt they would find any buyers given the current financial crisis. CF is still digesting the Paramount deal and it appears they are on schedule financially to pay off that debt load. CF won't be buying other parks any time soon. That would just be repeating the mistakes that got SF into trouble in the first place.

Discerning which firms will cave first is difficult, but S&P has identified 162 "weakest links," or companies in danger of defaulting over the next 12 months. It is the seventh straight month that the roster of credit-unworthy firms has grown. On that list are high-profile names such as United Airlines parent UAL, General Motors, Tribune, Six Flags (SIX), and Trump Entertainment Resorts.

http://www.businessweek.com/bwdaily/dnflash/content/sep2008/db20080928_348088.htm?campaign_id=yhoo&vm=r

I've long ranted that Ch.11 filing is inevitable for this horribly-managed and operated chain. Unless you have money to burn, sell your shares before they are worthles...

At $0.69 per share, is it really worth selling?

According to the article, part of the reason the credit rating was downgraded was because selling assets is not a likely prospect. Just because people here think Six Flags should sell off this park or that doesn't mean it's going to happen.

It takes two parties to complete a sale. And stop assuming that Cedar Fair is just going to jump in and start buying Six Flags' assets. Because even if a certain park kicks ass and has awesome rides, CF has its own issue to worry about without taking on more debt and trying to bring more parks into the fold.

Rye.D.Ziner said:
I've long ranted that Ch.11 filing is inevitable for this horribly-managed and operated chain. Unless you have money to burn, sell your shares before they are worthles...

:)

The last three years of management have been spot-on. Exactly what needed to be done in almost every instance.

Unfortunately, current management walked into what was practically a 'certain doom' situation and even still managed to turn things around. Then the ecomony went stupid...

Call me an optimist if you must, but I'm still not writing them off.

Jason Hammond said:
At $0.69 per share, is it really worth selling?

It is if you bought a bunch last month when it was 25¢ per share.

kpjb said:

Jason Hammond said:
At $0.69 per share, is it really worth selling?

It is if you bought a bunch last month when it was 25¢ per share.

And the commission for buying and selling doesn't cost more than the value of the shares.

I have to agree with Gonch on this one. Current management is playing craps against someone with loaded dice. With the shape the parks were in three years ago and the current economy I am surprised they are doing as well as they are doing. To be honest, this junk rating should have been applied a lot earlier when debt was increasing at a rapid rate and revenue was tanking.

If I were Shapiro, I think my move during the offseason would be to unload another park or two to shore up the debt to equity ratio a bit more.

I would also be looking hard at whether the price increases from the previous years are going to still bring them business in a time when people are spending less on entertainment with the economy doing so poorly. They need to find ways to show value without giving up revenue. If they don't do that this next season they will be sunk.

Lord Gonchar said:
Call me an optimist if you must, but I'm still not writing them off.

Optimist.

I think Chapter 11 comes soon. You hit the nail on the head, though. Shapiro and company walked into a certain-doom situation.

I'm starting to wonder if we'll be talking about Cedar Fair in the same terms five years down the road.

I think they avoid chapter 11 if they sell parks. The problem is finding buyers. My first candidate would be Kentucky Kingdom as it may be possible to sell it lock stock and barrel to the state of Kentucky for their State Fair. They may take it sans-rides just for the land and you end up having to auction everything else off, ala Geauga Lake.

If they invest in the parks that make them money every year, year in and year out, like SFGAm and SFGAdv and work with those as a base for the rest of the company and pare down the other parks or sell them off, I think they will survive without filing a chapter 11.

The one thing I did not agree with was adding another coaster to SFMM this year. That park was almost on the way out of the corporation because it bleeds money like a stuck pig. Putting a wooden coaster themed to Terminator is not going to bring more people to the park. They are just going to think they brought Psyclone back and not ride it!

Why would they file for bankruptcy if they're predicting positive cash flow? That's something you do when you can't pay your bills, and they're indicating that's not the case.

The anal-ists are making their change based on a lack of liquidity, which I think is valid, but "think" they won't have the cash flow, which is the opposite of what management has said. So who's right?