Six Flags Remains Fiscally Fit
Despite rumors of pending bankruptcy, Six Flags product improves, working on alternatives.
The head of
responded Wednesday to rumors circulating about the financial stability of the
parent company of the popular amusement park.
Reports from Wall Street have shown Six Flags’ value
dropping and corporate management is trying to avoid a Chapter 11 bankruptcy.
According to the Associated Press, Six Flags may not have enough cash to pay
its Preferred Income Equity Redeemable Shares (PIERS) which must be redeemed
for more than $300 million in cash by August 15. A failure to redeem would
constitute a default, allowing creditors to speed up their collection of the
company’s outstanding debts.
“The financial issues being reported are related to reducing
debt and ‘cleaning up’ the company’s balance sheet,” said Jay Thomas, President
of Six Flags Magic Mountain. “To that end, Six Flags, like many other companies
in these difficult economic times, is exploring a number of alternatives, which
in any event, is expected to include a significant debt for equity
exchange. Our balance sheet initiatives will be managed by our corporate
team, and are purely ‘back of house’ issues dealing exclusively with our
holdings companies and their creditors. To our partners, vendors and most
importantly, our guests, it is not just ‘business as usual,’ we are poised for
an even more exciting season with the launch of our new Terminator Salvation:
The Ride in May, the Mat Hoffman’s Danger Defying Daredevils stunt show in
June, and a variety of concerts and special events this summer.
“The good news is our company will thrive with a financial
restructuring and will be able to make considerable investments toward asset
maintenance and new product enhancements,” he continued. “In fact, we have
plans to launch a new major attraction at
every year for the next several years and are already deep into planning for
our 50th anniversary in 2011. I want you to know that regardless of what you've
read or heard about the company, regardless of what you might hear in the
coming days, know that the product you've witnessed us rebuild is strong and
will move forward. Our guests will only see an even better experience.”
Six Flags CEO Mark Shapiro also issued a statement to
“As I mentioned on our third quarter earnings call, upon the
installation of our current management team in early 2006, we set out to
implement a three year turnaround plan, while leveraging our nearly 50 year
history and internationally recognized ‘Six Flags’ brand name. Since
then, we have worked tirelessly to diversify and grow revenues and increase our
operational efficiency and cash flows. As a result of these initiatives
and despite a challenging economic environment in 2008, Six Flags achieved the
five key strategic objectives that my team set out to achieve by the end
of its third year. In other words, we accomplished our mission.
“First, we cleaned-up the parks, improved the overall guest
experience and repositioned the brand by diversifying the product
offering. For the second year in a row, our key guest satisfaction scores
were at or above all-time highs. We were cleaner, delivered a more broad
based entertainment package, enforced the code of conduct for our guests, and
had better trained employees to deliver a better standard of service. Our
commitment to safety and security was heightened as well. Bottom line is
that we succeeded in bringing the family back to Six Flags.
“Secondly, we created and grew a new high margin and low
capital sponsorship and licensing business that achieved annual revenues in
excess of our targeted $50 million. In 2008, we achieved sponsorship and
licensing revenue from these initiatives of approximately $59 million, an increase
of 53% over the previous year.
“Third, we exceeded our target of $40 per capita and
achieved more than 20% cumulative growth from 2005.
“Goal #4: We improved our modified EBITDA margin by
6.2% over 2007, but more importantly operated at an EBITDA
margin of 30.1% in 2008, which was one of the five key strategic objectives.
“Finally, 5th and last, we generated positive Free Cash Flow
for the first time in our company’s history. During 2008, we were Free
Cash Flow positive with a record Adjusted EBITDA of $275.3 million,
representing a 45% increase year over year. This was the best year ever for the
company. The company has never had better performance for this portfolio
of parks. The operational side of our business is extraordinarily healthy.
I am proud of the work of our 30,000 employees who believed in our vision and
executed the strategy. Morale is strong because after a great many years
of hard times, the employees of Six Flags have something to cheer about.
“I don’t need to remind anyone of the difficult economic
environment, particularly in the area of discretionary consumer spending.
Yet I remain cautiously optimistic that our 2009 plan, which is well designed
to offer an exciting entertainment package at value pricing, will resonate with
our guests in this challenging environment. This plan includes exciting
new and improved rides including 2 new coasters, one at Magic Mountain in Los
Angeles, themed after the new Terminator Salvation movie, and one at Six
Flags Mexico themed after the Dark Knight blockbuster film, and two other
coasters being re-launched and re-packaged at SFNE and SFNY; a new Wiggles
World in San Antonio; an expansion of our popular summer concert series and
glow in the park parade; an increase in our operating days and hours; and an
exciting marketing campaign featuring the reintroduction of our iconic Mr.
Six character and an efficient marketing campaign that is taking advantage of
lower ad rates in the marketplace. Moreover, in this the third year of
our staffing initiatives, I expect us to have the best qualified, trained and
most highly motivated park staff in our company’s history designed to deliver
even higher levels of guest satisfaction.
“Turning to our balance sheet, first let me give some
historical context. When my team and I joined the company in early 2006,
we inherited a highly leveraged company with significant associated debt
service requirements as a result of poor investments by prior management.
Since the management change, we have sought to improve the Company’s balance
sheet and debt profile by, among other means, selling non-core assets for
almost $400 million; entering into a new $1 billion credit facility with much
more favorable rates, covenants and extended maturities; and completing a
transaction last year in which we exchanged approximately $530 million of
existing notes for approximately $400 million of new notes maturing in 2016,
thus reducing debt by $130 million and further extending our debt maturities.
“Despite these significant achievements, we of course,
remain highly leveraged.
“As I mentioned on our third quarter earnings call, we are
exploring all options in order to reduce debt and comprehensively clean-up our
balance sheet once and for all. The first step to fixing this company was
turning around the operation and restoring faith in our brand. The next
step was always the balance sheet. Given the current negative conditions
in the economy generally and the credit markets in particular, there is
substantial uncertainty that we will be able to effect a refinancing of our
debt in the near term or our preferred stock prior to its redemption date on
August 15, 2009. We simply can't refinance our debt with the markets
being what they are and we can’t sell excess real estate in this environment
and expect to get something even close to full value.
“Therefore, like many other companies, we are exploring a
number of alternatives, which in any event, is expected to include a
significant debt for equity exchange, and we have thus retained Houlihan Lokey
as our financial advisor, along with counsel for the Company and for the
board. Together with Houlihan Lokey, we have held a number of discussions
with most of our large debt holders. While many of our debt holders have
been generally supportive of our efforts to reach a consensual out-of-court
deal, one of our principal debt holders who holds a significant amount of our
senior notes due 2010, has thus far resisted a consensual restructuring.
In fact, the Portfolio Manager of that principal who holds the 2010s, has
refused to even meet with me in person. The auto companies have an easier time
getting a meeting with the United Auto Workers than I do of getting a meeting
with this particular Portfolio Fund Manager. Makes zero sense.
“Still, we stand ready, willing and able to work with them
towards a resolution. In the meantime, we will continue to explore all
options to right the balance sheet.
“At this time, what I want to assure all of our partners,
vendors, guests and employees – all of the stakeholders in Six Flags – is that
no matter what route we choose, our guests will not see a difference in our
product offering this summer. In fact, they will only continue to see
“As I mentioned earlier, we are full steam ahead on new
rides in every park; we will have the best concert line-up nationwide that
we’ve ever had; new attractions themed after movie franchises such
as Terminator Salvation, The Dark Knight, The Mummy and the
upcoming feature Fame; new advertising partners such as T-Mobile and Mars with
their new in-park M&M Emporiums; current partners that are actually
expanding their relationship with us like American Express, Chrysler, Papa
John’s, Johnny Rockets, and Coca-Cola; season pass and group sales which are
brisk at the moment; our longest season ever at several of our parks; and our
Everyone Pays Kids Pricing strategy which has deeply resonated with the
consumer. We are open figuratively and literally and we will be at full
“Our balance sheet initiatives are purely “back of house”
issues that deal exclusively with our holding companies and their
creditors. Our park operations are on solid footing and highly
profitable. Our brand has reemerged. The connection between Six Flags and
the consumer has been reestablished and our 30,000 employees that have worked
tirelessly over the last three years to make it all happen remain faithful and
“So for those of you who are visitors, those of you who come
with your friends, your children, your grandchildren, those of you who are
fans, those of you who are looking for ageless entertainment that is affordable
and close to home this summer, those of you who are stakeholders of Six Flags,
in any way, at any level, I want you to know that regardless of what you've
read or heard about the company, regardless of what you might hear in the
coming days, know that the product you’ve witnessed us rebuild is strong and
will move forward. The guest will only see an even better
“Further to that point, while I’ve gone into great detail on
our enhancements and investments to the parks this season, I’d add that we’re
deep into planning for our 50th anniversary in 2011. We will launch new
major attractions in every Six Flags park for our 50th anniversary season AND
we will continue to clean up, rehab and improve the portfolio of attractions we
inherited when the new management team came on board in 2006. Just
one example to illustrate the uniqueness and comprehensive nature of our
celebration plan is that we intend to close the legendary wooden roller coaster,
named The Giant, built 18 years ago, at Six Flags over Texas for the
entire season in 2010 so that it can undergo a $10MM renovation in time to
re-open for our 50th anniversary season in 2011. This would be the
largest ride renovation in the history of the company – new trains, a more
comfortable ride, a faster ride and additional features, all with the
intention of restoring this famed coaster to world class status. The takeaway
of our 50th anniversary planning process is that the business and
brand of Six Flags is safe and strong and we’re going to stay around.
“And finally, speaking directly to all of our vendors and
partners, we ended the 2008 calendar year with over $200M in cash; we are on
solid footing when it comes to liquidity. Your bills are being paid and will
continue to be paid.”