Showdown over Six Flags begins in U.S. bankruptcy court

Mon Mar 8, 2010 9:17am EST

* Ownership of Six Flags hinges on outcome of hearings

* Bondholders to argue about debt company can afford

* Dozens of witnesses may be called to testify

By Tom Hals

WILMINGTON, Del., March 8 (Reuters) - Warring creditors of Six Flags Inc SIXFQ.OB take their battle for the theme park operator before a bankruptcy judge on Monday, with the outcome likely hanging on how much debt the company can afford.

Holders of senior bonds will tout their plan, which leaves them in control of the company, as the best way to bring Six Flags out of bankruptcy with a manageable amount of debt.

Junior bondholders are likely to argue that the operator of 19 regional parks can borrow more and pay all creditors what they are owed. Their plan would leave them in control of the company.

The junior bondholders will also argue the senior bondholder's plan cannot be confirmed because they voted to reject it.

The trial is scheduled to last two weeks, with potentially dozens of witnesses taking the stand and thousands of documents entered as exhibits with the aim of convincing Judge Christopher Sontchi of the company's true value and each plan's viability.

However, the hearings will go forward without Six Flags' Chairman Dan Snyder, who will not testify, according to the company's attorney.

Senior bondholders, known as SFO Noteholders, have drafted a plan that has been adopted by the company. Led by Avenue Capital Group, which invests in financially troubled companies, the plan will fund the exit from bankruptcy with some $830 million in debt. The SFO Noteholders would also invest $450 million in equity.

Under the SFO Noteholders' plan, most secured claims would be paid in full. Junior bondholders, known SFI Noteholders, would get about 7.3 percent of the reorganized company's equity and the rest would go to holders of SFO notes and management.

The Avenue Capital-led group has been arguing that is only one plan because the SFI Noteholders could not finance their plan. "This long-promised plan remains just that -- an unfilled promise," SFO Noteholders said in court papers of the alternative plan.

That changed on Friday, when the SFI Noteholders informed the court they had committed funding for their plan, which includes $1.17 billion of debt and $582 million of equity.

The SFI Noteholders proposed paying everyone senior of their own debt in full and taking control of the company.

With the committed financing, the SFI Noteholders will be able to argue the market has spoken about the value of the company. As a result, the outcome may hinge on more technical issues about the structure of the company's plan, voting procedures and certain assets that attach to SFI bonds.

While the trial plays out in public, behind-the-scenes talks are likely to continue, although the burden is on the SFI Noteholders to craft an offer to win over Avenue Capital.

Six Flags might seem to be an unlikely target of such an expensive tussle. The company has largely been unprofitable for more than a decade.

However, some of the debt that sunk the company was incurred to build bigger and better attractions and roller coasters, which now will protect the company from potential competition.

In addition, a sluggish economic recovery has made the regional theme parks an affordable "stay-cation" alternative to long-distance holidays for cash-strapped American families.

The case is In re: Premier International Holdings Inc, U.S. Bankruptcy Court, District of Delaware, No. 09-12019. (Editing by Maureen Bavdek)

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