In June 2009 Six Flags filed for Chapter 11 bankruptcy with over $1 billion in debt. With a listed debt of $2.4 billion compared to assets of $3 billion, the company said it could not support more than $890 million of debt. They were able go solvent the following year by turning the company’s ownership over to bondholders. The company’s pre-bankruptcy shares were wiped out under the reorganization and Six Flags listed newly issued shares on the New York Stock Exchange. The company emerged from bankruptcy with $1 billion in term debt, well below the roughly $2.7 billion it had when it filed.
The bankruptcy ended the Daniel Snyder era at Six Flags. The owner of the Washington Redskins led a proxy fight for the company in 2005 and installed himself as chairman. Snyder brought in Mark Shapiro from ESPN and Jeffrey Speed, the company’s chief financial officer, from Euro Disney. While the company was hobbled by the recession (and well-known poor business decisions), it was also the center of a fight among creditors who spent tens of millions of dollars on legal fees trying to gain control of the business.
Six Flags uses a highly-leveraged business model that lets management use debt to rapidly expand during the good times and declare bankruptcy during the bad times. In 2009, according to Shapiro, the company was paying around $175 million in interest expense and $100 million in Capex (capital expenditure) with around $275 million in net income. Instead of learning from the mistakes of the previous owners, Six Flags’ new owners allowed management to pile on even more debt.
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Reuters.
Unfortunately, Six Flags might be looking at bankruptcy again, regardless of how soon the coronavirus pandemic ends.
As of the fourth quarter, Six Flags has $2.26 billion in long term debt, $113.3 million in interest expense and $179 million in net income for the full year of 2019. The long-term debt has soared to pre-bankruptcy levels, while net income is around $100 million less than when the company went belly up in 2009. To make matters worse, Six Flags has around $583 million in debt maturing in 2022.
The company was already in trouble when the ambitious China expansion hit a brick wall with its partner in the region, Riverside Investment Group, defaulting on promised royalty payments as the Chinese real estate market collapses. Now that the pandemic is spreading in the United States, bankruptcy is a real possibility if Six Flags declares massive losses for the next few years.