UPDATE 4-Stark-led bondholders win Six Flags in proposed deal

* Six Flags, bondholders reach proposal to end bankruptcy

* Stark Investments-led bondholders to control company

* Management to receive up to 15 pct stake

(Adds details on plan for Six Flag management and on


By Tom Hals

WILMINGTON, Del., March 19 (Reuters) - A group of bondholders led by Stark Investments will take control of Six Flags Inc SIXFQ.OB under a proposal announced on Friday that would lift the theme park operator out of bankruptcy.

Under the proposal, which requires court approval, the Stark group will invest $725 million in new equity in Six Flags, according to the company’s attorney, Paul Harner of Paul, Hastings, Janofsky & Walker.

Under the plan, bondholders will also borrow $1.1 billion. The money will go to pay off creditors and provide working capital after the company emerges from bankruptcy.

Under the proposal, management will have warrants and options worth up to 15 percent of the company’s equity. The rest will be owned by the group led by Stark, a large hedge fund based in Milwaukee.

The proposed settlement would also mean a change in strategy by the Stark bondholders, known as the SFI Noteholders. Before the trial, they indicated they were planning on replacing management if their plan of reorganization was adopted.

Now, current management will remain in place under the plan, Harner said. That means that Daniel Snyder, the owner of the Washington Redskins football team who took over Six Flags after a proxy fight in 2005, will remain as chairman. Mark Shapiro, whom Snyder brought in from ESPN to run Six Flags, will stay as chief executive.

A spokeswoman for Six Flags said the plan is now fully consensual and that some details still had to be worked out, such as completing the debt finance.

“We are absolutely comfortable with the level of debt going forward which is why we reached a deal,” said Sandra Daniels, the Six Flags spokeswoman in an email. “The SFI note holders have stepped up and written checks for $725 million in new equity, paying off all the creditors senior to them -- that action more than anything signals their confidence in the company and the management team.”

The proposed deal came on the ninth day of a trial in which the company was seeking approval of its plan of reorganization.

The company had adopted a plan drafted by a group of senior bondholders known as the SFO Noteholders, a group led by Avenue Capital Group. The company’s plan proposed giving the Avenue Capital bondholders control in exchange for their roughly $420 million in debt. Under Friday’s settlement, they would be paid in full.

While negotiations have continued during the trial, a source involved in the talks said the Stark group deposited $655 million in escrow last night. “That moved things along,” the source said.

A major issue leading up to the trial had been the ability of the Stark group to finance its plan of reorganization. On the eve of the trial, it got a financing commitment from Goldman Sachs Lending Partners LLC GS.N, UBS Loan Finance LLC and UBS Securities LLC UBSN.VX.

Friday’s settlement is expected to go before the court for approval on April 16, Daniels said, with the company expecting to emerge from bankruptcy shortly thereafter.

Bonds issued by Six Flags Inc, 9.625 percent notes due in June 2014, rose to 28.5 cents on the dollar on Friday, up 1.5 cents on the day, according to high-yield research firm KDP Investment Advisors.

The company still faces some hurdles.

Lance Laifer of Resilient Capital said he plans to continue a “vigorous fight” for a recovery. Resilient owns PIERS notes that will be wiped out under the settlement.

Laifer said the agreement “further highlights the fact that management and the board of directors are more interested in lining their own pockets with equity than with fulfilling even their most basic fiduciary obligations.”

Laifer said Friday’s proposal values the company at around $2.3 billion. The company’s plan drafted by Avenue Capital had valued the company at around $1.6 billion.

“This agreement proves that the valuation works submitted by the so-called experts in the case dramatically undervalued the assets of Six Flags,” Laifer said.

Six Flags has been largely unprofitable for a decade, making it an unlikely candidate for a pricey courtroom battle.

However, the debt that kept the company in the red also paid for ever larger and more thrilling rides, which creates a high barrier to potential competition.

For the Stark group, it remains to be seen if they acquired Six Flags for a sensible price and whether the debt has been reduced to a manageable level.

Joel Luton, the director of research for APS Financial in Austin, Texas, noted that theme parks have been on investors’ radar in the last year and the trial revealed several parties were interested in the company.

He said Six Flags could be a way to play an economic recovery, although it might also do well in a downturn.

“There is a story there that this is an alternative to the Disney World vacations,” he said.

Stark Investments did not return calls seeking comment.

A spokesman for Avenue Capital Group declined to comment.

The case is In re: Premier International Holdings Inc, U.S. Bankruptcy Court, District of Delaware, No. 09-12019. (Additional reporting by Dena Aubin in New York; editing by Richard Chang and Andre Grenon)