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Six Flags' new thrill ride: Chapter 11

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One of the most popular amusement park companies in the world, Six Flags, is experiencing a financial rollercoaster of it's own, having just filed for Chapter 11 bankruptcy. But it looks the company will come out of the economic corkscrew all smiles.

If the company's plan is approved by the court, it will be owned primarily by its creditors. With more than $2 billion in debt, the company has been negotiating a stock for equity deal, similar to what both Chrysler and General Motors were trying to accomplish before filing for protection. The park chain's owners could not reach a deal, which was also affected by a pending payment of $300 million to preferred stockholders. Instead, a new ownership structure will be in place.

Six Flags' bankruptcy was well-managed, demonstrating a very solid example of the benefits of a Chapter 11 reorganization plan. The company did a great deal of upfront legwork to pre-negotiate the most complex components of the plan and thus, should exit bankruptcy in a short amount of time.

The provider of thrills and chills nationwide plans to eliminate $1.8 billion in debt and the $300 million stock payment. Those described as "senior secured lenders" will get close to a 90% stake in the new company. The remaining portion of the company will go to bondholders and a couple of hedge funds that have contributed to the park's ownership.

The park's troubles, despite having what ownership defined as a "it's best season ever" in 2008, can be attributed the nation's collective decline in entertainment spending, as the financial crisis in conjunction with outrageous gas prices last summer, depleted gate revenues.

Nevertheless, the company did see success after its top executive, former ESPN suit Mark Shapiro, invested close to a $100 million cleaning up parks across the country, eliminating smoking and requiring more costumed characters to be on hand to greet families. According to those close to the company, management's plan was to create a "mini-Disney."

Ownership is also citing the recent swing flu outbreak as reason for a drastic plummet in ticket sales at its Mexico City location. There are 20 Six Flags parks in the United States. Tight credit, which also prevented refinancing and limited access to new capital, is cited as a contributor to the bankruptcy.

The company is controlled by the owner of the Washington Redskins, the ubiquitous Dan Snyder. His 6 percent stake will most likely get sacked. Microsoft founder Bill Gates' Cascade Investment owns an 11 percent stake.

In what some may consider another example of the strange dichotomy between CEO performance and company results, top executive Mark Shapiro will reap a performance bonus of $3 million for successfully reorganizing the company as part of an employment agreement that was recently extended into 2013.

While initial reaction from some to this sort of payment would be at the very least vitriolic, it actually clearly demonstrates how in many business cases, bankruptcy is simply a financial strategy tool. Yes, the company has been losing money, however, Chapter 11 simply allows for a temporary restructuring.

Moreover, if the majority of the debt holders are in agreement with the plan, the case study can be considered a success, especially when daily business is considered stable. (In 2008, revenue rose by about 5 percent to $1 billion and operations boasted an income jump to $144 million.) Thus, in the most fundamental sense, Six Flags is simply re-aligning its debt to lessen the burden on long-term growth.

In the shadow of mega-bankruptcies like GM and Chrysler, Six Flags has apparently assembled a solid example of what is beneficial about bankruptcy. Should everything continue to operate smoothly, the company will be out of bankruptcy by January 2010.

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