| NEW YORK
NEW YORK The battle for control of bankrupt U.S. amusement park operator Six Flags Inc SIXFQ.OB heads to a Delaware court on Friday amid growing questions about how much the company is actually worth.
At the center of a dispute between Six Flags and competing groups of creditors is whether the company's current proposed reorganization plan undervalues the company, preventing some creditors from getting what they feel they deserve.
Over the last 18 months, even one of its senior debtholders, Avenue Capital Group, has reduced its estimates of how much the company is worth by about $1 billion, according to documents obtained by Reuters.
The lower valuation comes as the company has struggled with wild swings in its earnings since last year, hurt by recession-strapped consumers, weather, and the H1N1 flu virus.
Six Flags filed Chapter 11 in June with a prepackaged restructuring plan that transferred nearly all of its stock to its bank lenders in return for cutting its debt.
Since then, two other creditor groups have sought to fight for control of the company. An informal bondholders group led by Avenue Capital has proposed a plan, now supported by the company, that values the company at around $1.5 billion, meaning lower tier creditors would only be eligible to recover a 4.8 percent stake in the reorganized company.
A group of those lower tier creditors, known as the "SFI noteholders," asked the court earlier this month for permission to file a competing plan of reorganization, saying they have a better proposal that would allow them to take more control over the company after bankruptcy.
WHAT'S A THEME PARK WORTH?
In September 2008, about 10 days after Lehman Brothers filed for bankruptcy, Avenue Capital, an investment fund that focuses on distressed investments, told its investors that it estimated the company was worth somewhere between $2.3 billion and $2.6 billion.
A copy of the presentation, made at Avenue's annual conference and obtained by Reuters, shows that the earlier valuation was based on an "industry standard" multiple of 8 times earnings, and a 2008 estimate of the company's earnings before interest, taxes, depreciation and amortization (EBITDA) of as much as $288 million.
If Six Flags had a similar valuation today, the SFI creditors would be eligible for full, or close to full, repayment of their loans.
"In 2008, Avenue believed the company was worth more," said Marc Lasry, Chairman and CEO of Avenue Capital, when asked about the presentation. "Since then a number of things have occurred," Lasry said.
Lasry noted that in the past year Six Flags filed for bankruptcy, its EBITDA dropped to $190 million and Blackstone (BX.N) bought Sea World and Busch Gardens at a multiple of about 6.5 times earnings, reducing the industry standard. Lasry said Avenue's presentation was prepared in advance of the investor conference and based on its June 30 projections.
Six Flags' official committee of creditors weighed in on the fight on Thursday, saying in court documents that the Avenue-led plan "does not adequately explain" how Six Flags came up with the valuation of the company.
The committee said it wants the company's reorganization plan to address "dramatic fluctuations" in estimations of the company's worth from the initial plan of reorganization filed in July.
The committee has asked the court to allow a "breathing spell" for the SFI noteholders to try to get a plan together.
GOOD COMPANY, BAD BALANCE SHEET
Theme park experts describe Six Flags as a company with good cash flow that collapsed under the weight of an untenable debt load. The regional theme park operator drew more than $1 billion in revenue in 2008, despite not having turned a profit since 1998.
The fight over what Six Flags is worth underscores the value investors are seeing in the theme-park business -- which is known for being a strong generator of cash flow.
"Theme parks have significant fixed costs so as the macro environment stabilizes and they potentially see revenue growth, profit could improve dramatically," said Mike Simonton, a credit analyst with Fitch Ratings, who thinks the company could recover from its "depressed" 2009 earnings level.
The company also differs from some of its competitors in that it owns its parks' real estate, has significant tax benefits coming to it, and also has an ownership stake of dick clark productions inc, which produces the Golden Globe Awards and "So You Think You Can Dance," among other productions.
The question of valuation may ultimately be a question of how much debt the company can support in a post-bankruptcy world. Avenue has obtained $700 million in financing for the company's reorganization plan and put up $400 million of its own money. If Six Flags' lower tier creditors can put more debt on the new company, they could recover more and have a bigger ownership stake, but lenders may question how much debt the company can support.
"All cases come to one thing," said Shawn Abboud, Executive Director of Credit Sales & Trading for APS Financial in Austin, Texas. "Does this plan create an enterprise that is likely to succeed on the back end? If it doesn't, you're in that conundrum."
In re Premier International Holdings Inc, U.S. Bankruptcy Court, District of Delaware, No. 09-12019.
(Reporting by Emily Chasan in New York and Deepa Seetharaman in New York, additional reporting by Tom Hals in Wilmington, Delaware; Editing by Phil Berlowitz)