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A Shaky Roller Coaster Ride for Six Flags

In Delaware, Six Flags bondholders, who have been fighting over control, told a bankruptcy judge recently they have agreed on a revised Chapter 11 reorganization plan, for the theme park operator. Through the agreement announced in court, holders of junior notes issued by holding company Six Flags, Inc., will now assume control of the New York company. Six Flags, incidentally, owns 20 amusement parks throughout the United States, Mexico and Canada. Holders of senior secured notes issued by Six Flags Operations, Inc. (an operating subsidiary), would have received roughly 93% of the equity, in the reorganized company under an earlier proposal. Under the new plan, SFO noteholders will receive $470 million in cash by the Six Flags, Inc. noteholders in order to satisfy their claims.

An attorney for the Six Flags, Inc. noteholders, Thomas Lauria, told Judge Christopher Sontchi in Delaware all other creditors will be paid in full by the SFI group. The SFI group recently put together a financing package in order to offer its alternative plan.

“This is truly an extraordinary result,” attorney Lauria said, considering the case itself has proven to be as wild and harrowing as one of its own rides. Ever since Six Flags sought bankruptcy protection back in June 2009, it has been hit hard by high debt and sinking park attendance—who can afford to visit the amusement park these days?

The company’s original reorganization plan proposed a debt-to-equity swap, giving secured lenders 92% of the reorganized company’s common stock. After months of labored discussions with debt holders and secured lenders, Six Flags nixed its plan and adopted another one under which lenders owed more than $1 billion, would be paid in full; and holders of the senior SFO notes would receive roughly 25% of the reorganized company’s common stock, along with rights to purchase an additional 70%.

However, holders of SFI’s junior notes objected to the revised plan, which would have given them only around 5% of the new equity. They instead offered an alternative proposal which included more than $1 billion in new debt and an equity rights offering of $725 million—proceeds from which would be used to pay off SFO noteholder claims of $420 million and satisfy other creditors.

Under the recent agreement announced, the recovery for SFO noteholders was nudged to $470 million from $420 million. Meanwhile, shareholders led by Resilient Capital Management, stand to get nothing from the agreement and objected to the plan, saying it undervalues the company and wipes out stockholders, while allowing frivolous bonuses for managers who despite driving the company into bankruptcy, stand to gain up to 15% of stock in the new company under an incentive plan.