Six Flags shareholders propose another reorganization plan

Posted Friday, October 2, 2009 10:58 AM | Contributed by Chitown

Preferred shareholders of Six Flags Inc. offered their own plan to reorganize the bankrupt theme park owner, claiming they can fully repay the company’s debt and give something back to shareholders, unlike two rival plans. Resilient Capital Management LLC, which holds an undisclosed number of Six Flags’ redeemable shares, filed a proposed term sheet in U.S. Bankruptcy Court in Wilmington, Delaware, as part of its proposal.

Read more from Bloomberg.

Friday, October 2, 2009 1:50 PM

This so-called plan is going nowhere. There are now three potential plans, one that pays off the senior debt in cash, and these guys are hoping that the senior debt will walk away from cash today in exchange for a 5% note over 50 years?

It's almost embarrassing. I feel sorry for the shareholders, but anyone who knows the business saw this bankruptcy coming a long time ago when you saw what management was doing.

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Friday, October 2, 2009 3:23 PM

I don't really understand this. Since when does a bankruptcy reorganization result in the paying off of debt in cash? If the company had that ability, wouldn't they just do that without bankruptcy?

I don't know. I think this all sucks for the shareholders, obviously, but that's the chance you take when investing. It could go either way and in this case, it didn't work out for them.

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Friday, October 2, 2009 3:57 PM

At this point, there is only one plan that has officially been filed with the bankruptcy court. Debtor has the exclusive right to file plans for 180 days after the filing of the case (court can extend or shorten that time period if debtor/creditors ask). Its my understanding that the debtor's proposed plan would result in the secured lenders exchanging their debt for $600 million in debt and 90% of the equity of the company. Remaining equity would go to certain bondholders (with potential for some equity bonuses to certain management folks).

Sometimes you do see bankruptcies where 100% of debts are repaid in full though its certainly not common and typically when it does happen the repayment is over time. Certain creditors (typically secured creditors) can get paid in cash (sometimes in full but often only a portion of what they are owed) if there is some type of liquidation/sale of the assets of the debtor. That may be what the third plan mentioned above would do (I have only seen info about the debtor's plan and the plan that has been suggested by certain shareholders of the company).

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Friday, October 2, 2009 4:05 PM

Yeah, but I thought the whole point of the reorganization rather than straight bankruptcy is to protect the assets so that business can continue on the other side of the process. The goal is supposed to be to keep Six Flags in operation.

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Friday, October 2, 2009 4:44 PM

I think you are mixing up bankruptcy and reorganization. Companies can file chapter 7 bankruptcy cases which are liquidiations in which the assets of the company are sold (as a going concern or piecemeal) for what hopefully is the higest price with the proceeds distributed to creditors in the order of priority in the bankruptcy code.

Companies can also file Chapter 11 bankruptcy cases which are called reorganization cases. In the classic chapter 11 case, the debtor files a plan of reorganization in which its debts/equity are restructured, creditors vote on the plan and if approved, the company exists the bankruptcy case as a reorganized company. But that is a very time consuming and expensive process. Pretty much anything the company does needs to be approved by the court (through motions/objections/reponses/replies/etc). Companies can eat up huge amounts of liquidity just to get through that process. So that option hasn't been very common for a lot of companies in the last 10 years or so. Further complicating it currently is the lack of financing (called debtor in possession (or DIP) financing). Banks just are not providing DIP loans very often in the current banking environment making it that much tougher to successfully reorganize in bankruptcy.

But many chapter 11 cases are actually liquidating 11s. Within a relatively short period of time, the debtor files a motion to sell substantially all of its assets. If the sale is approved, there is nothing to reorganize and the case is pretty much over other than fighting over which creditors get the money. But if the assets are sold as a going concern, the buyer will continue to operate them and no one would really notice the difference (buyer may buy the right to the "Six Flags" name if they think there is money in it for marketing purposes).

Sometimes you see liquidating chapter 11 plans proposed which involve the sale of the assets of the business rather than the reorganization of the company's debt/equity. Typically those plans are filed by creditors rather than the equity/owners who often want to keep the company going (preserving something of their equity/ownership). Creditors file those plans when they do not think the debtor's reorganization plan will succeed (like a lot of folks, debtors tend to over promise on what they can do in terms of revenue improvements/cost savings/etc). So even if the debtor wants to reorganize, the court may not give it that chance if creditors do not want to see the reorganization and the creditors can convince the court that the plan will not work (isn't "feasible" under the bankruptcy code).

And because of the costs of bankruptcy, you more often than not see attempts at out of court settlements which avert bankruptcy. Thats what Six Flags did. But I understand that the negotiations broke down and the bankruptcy was filed. Bankruptcies are also filed in a lot of instances to get a sale free and clear of any liens on the assets. So you can reach a deal with a buyer outside the bankuptcy and then file for bankruptcy and immediately file a motion to sell all assets free and clear (to the buyer pursuant to the pre-bankruptcy negotiated deal). Sometimes you file a bankruptcy to have the court force one or more parties into a deal that everyone else has accepted (assuming the deal is consistent with the banrkuptcy code).

More than I am sure you wanted to know but there it is. In the end, Six Flags may continue to operate after the bankruptcy as a result of some type of court approved reorganization or a sale of the assets as a going concern. And in either case, it may be all of the existing/operating parks or just some of them. And they may end up filing another chapter 11 at some point down the road (usually referred to as a chapter 22).

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Friday, October 2, 2009 5:09 PM

That was indeed more than I wanted to know, but that's only because, again, you don't give me enough credit. I referred to straight bankruptcy above and I was referring to Ch 7... forgive my lazy references.

There is no difference between reorganization as we refer to it for Six Flags and bankruptcy. The reorganization is a type of bankruptcy (Ch 11). While it may be true that you can liquidate in Ch11, I think it's been pretty clear all along that that's not what Six Flags intended to do. They've been trying to keep the business afloat through this process.

What merit could this plan have if Six Flags can demonstrate (through their efforts over the last few years of operation) that they can be a viable business if they could just restructure their debt?

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Friday, October 2, 2009 5:38 PM

I apoligize if I didn't give you enough credit.

Six Flags isn't the only one who has a say in the matter. I am sure they want to reorganize and continue. Its rare you find a struggling company that doesn't want to reorganize (at least at some point fairly long in the process, as at some point a lot of troubled companies see the light). But creditors and other stakeholders and the bankruptcy court and bankruptcy code will have a lot to say about that as well. If the company is insolvent (in the sense that its debts exceed its value of assets), equityholders/management are playing with someone else's (creditors) money at this point. From equity/management's perspective, why not roll the dice on reorganization as they have nothing to lose (being out of the money at this point anyway).

And with respect to the plans, as I noted, I have only seen a summary of the debtor's plan and the plan proposed by preferred shareholders that is the subject of this thread. I have not seen anything of the third plan which Ariel noted would pay senior debt in cash. I was only supposing that such a third plan, in order to pay off secured creditors in cash, would be a liquidating plan. If you can find a new set of lenders who would refinance the senior debt, the holders of the senior debt would be paid in full as well but in the current banking environment, I am not sure how likely that would be.

And under both plans from what I see, the company would be reorganized and would continue to operate. Its just how you reorder the pie that is at issue. Debtor's plan gives almost all of the equity to senior debt holders. According to the Bloomberg article, the new proposal would stretch the payment out on the senior notes for up to 84 years which seems pretty extreme to me.

And assuming the judge allows the competing plans to be filed along with the debtor's plan, the viablity of all plans will be at issue with folks not favoring any plan seeking to attack it. Viability of a liquidating plan is a lot easier to support because you typically would have a buyer and a known price.

**Edit -- Looking a little further, the third plan has been proposed by noteholders. Article I found indicates that such plan will pay senior debt in full but it doesn't say how or whether it will be in cash at close. They may propose paying the senior debt in full over time. Doesn't indicate the source of cash if the payment is to be in full in cash when the plan becomes effective. So the third plan is not a liquidating plan. Though in many respects it is as there will be new owners of the company on exit from bankruptcy. Though it appears that will be the case with each of the three plans. Argument is over who will be the owners (or to whom you are effectively selling the company).

Last edited by GoBucks89, Friday, October 2, 2009 6:01 PM
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Friday, October 2, 2009 8:12 PM

Carrie M. said:
...you don't give me enough credit.

Perhaps you should declare bankruptcy, then... I hear you can protect your assets.

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Saturday, October 3, 2009 9:01 AM

I usually check here for all the Six Flags Bankruptcy information. If you are crazy about numbers you will want to review some of the statements of financial affairs schedules. For example you could find that Great America had operating income of $43,228,001 for 2008. You can also find law suits pending against the company. Furthermore, you can look at some more specific asset and liability information.

Just putting it out there for those that have a need for information.

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