Bondholders begin court fight for Six Flags

WILMINGTON, Delaware (Reuters) - Two bondholders' groups and their hedge fund backers went to bankruptcy court on Friday to fight for control of Six Flags, with the outcome essentially hinging on the value of the regional theme park operator.

Six Flags Inc SIXFQ.OB filed for bankruptcy in June after failing to pull-off an out-of-court deal to restructure its debt.

The company currently supports a plan backed by senior bondholders and their main booster, hedge fund Avenue Capital Group. The senior bondholders would end up with control of the company under the Avenue Capital proposal.

A separate group of investors, led by hedge fund Stark Investments, owns junior notes and proposed a plan at the end of November that would give them control. That set the stage for Friday's court battle.

"It all boils down to value. There is a dispute over value," said Paul Harner, an attorney with Paul, Hastings, Janofsky & Walker, which represents Six Flags.

The junior noteholders essentially say they are being denied a fair recovery under the Avenue Capital plan, which undervalues the company.

Friday's hearing started with the company's request to extend its exclusivity, or the period in which it is the only party that can propose a bankruptcy plan.

The judge, Christopher Sontchi, could terminate that right, and he said he then would likely postpone a hearing on the company's disclosure statement, which also was scheduled to be heard on Friday.

Six Flags needs the court to approve the statement so it can put its reorganization plan to a vote of creditors.

The adjournment would give the Stark Investments group time to line up financing for their plan, according to their attorney, Christopher Shore of White and Case.

Both plans could then be put to a vote of creditors if the differences were not resolved in talks.

On the other hand, if the judge extends the company's right to propose a plan, the Stark Investments group would shift its focus to attacking the Avenue Capital plan.

"That will bring the mother of all valuation fights," said Shore.

During Friday's hearing, Harner warned that allowing a competing plan could jeopardize Six Flags' ability to secure the financing it has lined up for its reorganization.

The company's chief financial officer described how Stark Investments proposed its plan late on the day before the long Thanksgiving Day weekend and still has many unanswered questions.

"We see significant deficiencies with the plan. There is no committed financing," said Jeffrey Speed, the CFO. "It's woefully short of the capital needed."

The Avenue Capital plan uses both new debt and equity to pay off secured lenders, while the Stark Investments plan seeks to reinstate some of the secured debt.

Speed said the Stark Investments plan did not provide for the revolving debt that would be needed for working capital to get the company through the winter months when revenue declines significantly.

The Stark Investments group said they own more than half the junior notes, allowing them to block the Avenue Capital plan from being confirmed unless the judge intervenes.

The Avenue Capital plan is the second proposed reorganization. The company entered bankruptcy with a plan crafted with its bank lenders, which stood to gain most of the shares of the company.

That plan sparked immediate outcry and eventually the company agreed to Avenue Capital's plan.

The case is In re: Premier International Holdings Inc, U.S. Bankruptcy Court, District of Delaware, No. 09-12019.

(Reporting by Thomas Hals, editing by Dave Zimmerman)