Six Flags takes investors on a thrill ride

Jul 25, 2008 (Fort Worth Star-Telegram - McClatchy-Tribune Information Services via COMTEX) -- SIX | Quote | Chart | News | PowerRating -- For less than a buck, a consumer can either refill their souvenir Six Flags Over Texas cup with soda or buy a share of the company's stock.

On July 10, the New York-based theme-park company's stock slipped below a dollar as investors become increasingly concerned that Six Flags may be headed toward bankruptcy. Add the weak economy on top of the company's $2 billion mountain of debt, and Wall Street is clearly worried that Six Flags, which has not posted a profit since 1998, will not survive.

Despite the lack of investor confidence, Six Flags executives have been optimistic that the company will attract consumers with their parks' "good value" and predict that Six Flags' financial outlook will improve.

Roller-coaster stock

Shares of Six Flags (ticker: SIX | Quote | Chart | News | PowerRating) have steadily declined since the stock peaked around $12 a share after Washington Redskins owner Dan Snyder took control of the company in late 2005.

As the new management team spent millions to rebuild the company's image and improve its 21 parks, quarterly losses continued to pile up, and attendance declined to under 25 million. Investors started fleeing the stock, which had traded around $2 for the last six months.

Then last week, Six Flags stock dropped as low as a quarter when an institutional investor sold its entire stake in the company. The company managed to regain all of the loss the next day when Six Flags Chief Executive Mark Shapiro said the company was on track to be "free cash-flow positive for the first time in the history of the company."

Six Flags stock closed Thursday at 98 cents. It is in danger of being delisted from the New York Stock Exchange if it continues to trade under $1 for 30 consecutive days.

Bankruptcy on the horizon?

Six Flags has continued to struggle with more than $2.2 billion in debt.

Previous management, which spent millions buying new parks and building expensive roller coasters, accrued most of the debt, and the company has attempted to cut the load by selling some parks, like AstroWorld in Houston, and empty land.

Analysts and company executives have not yet mentioned bankruptcy as an option for Six Flags. But as credit markets tighten in the weak economy, investors seem to be worried that Six Flags will not be able to refinance its debt or make future payments.

"SIX could have a very difficult time refinancing in 2009 and 2010," wrote Stifel Nicolaus analyst Kit Spring in a May research note.

Last month, the company was able to execute a private debt exchange that pushed $400 million of its secured notes due in 2010, 2013 and 2014 out to 2016.

However, Six Flags still has a $288 million payment on preferred income equity redeemable shares due in August 2009.

Chief Financial Officer Jeff Speed has told investors that the company has several options to make that payment, including exercising a $300 million term loan that has already been approved.

"We are fine from a current cash and liquidity perspective," Speed said in a statement to the Star-Telegram this week. "The key questions from investors have to do with our ability to refinance our two upcoming maturities, as well as our performance this season in light of the challenging economic environment."

He added that "our recently completed exchange offer showed that the markets are open for us as we were able to refinance and extend the maturity of $400 million of debt until 2016. And, with respect to performance, we are encouraged by what we've seen so far this season."

Looking ahead

Investors will get a better idea of Six Flags' financial performance when the company reports its second-quarter earnings Aug. 4. The second quarter contains about half of the company's busiest daily operating season.

At the company's Arlington parks, Six Flags Over Texas and Six Flags Hurricane Harbor, attendance is up compared with last year, park President Steve Martindale said this month. Those parks have added new family-oriented rides this year: the MegaWedgie and Tony Hawk's Big Spin roller coaster.

If the company can weather the economic downturn and keep its debt manageable, Six Flags may be able to convince investors to come back, but it probably won't be this year.

"We think that management's strategies will lead to higher revenues by catering to a more attractive family-oriented clientele and capitalizing on sponsorship, licensing and real estate opportunities," a Standard & Poor's report from Monday said. "However, debt-servicing costs remain hefty, and a meaningful bottom-line improvement is likely beyond 2008."

Staff writer Jim Fuquay contributed to this article.

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