Judge: Six Flags not ready to exit bankruptcy
Six Flags Inc., the New York-based theme park owner, lost a bid to finance its exit from bankruptcy with loans and a stock sale when a judge said breakup fees in the proposed contract were too high.
U.S. Bankruptcy Judge Christopher Sontchi in Wilmington, Delaware, said the breakup fees on a proposed $800 million loan and a $450 million rights offering were excessive "by an order of magnitude or more." Creditors claimed Six Flags would have been forced to pay $42 million in fees to get out of the transactions later.
The loan and the rights offering were designed to fund the company's proposed plan of reorganization. The plan would have become too inflexible had he approved the agreements, Sontchi said.
"It will highly chill the ability to challenge that plan on its merits, or develop an alternative," he said yesterday in court.
After Sontchi's decision, Six Flags negotiated lower fees with the banks arranging the loan and with the noteholders who agreed to guarantee that all the new stock will be sold at the rights offering. Sontchi agreed to consider approving the new transactions on Dec. 11 when the company is scheduled to return to court.
Debt Plan
Six Flags filed for bankruptcy in June with plans to cut debt by $1.8 billion. Under a plan drawn up by company managers, lenders owed $1.1 billion would be fully repaid and two noteholder groups would split about 30 percent of the stock in the reorganized company. Six Flags would raise $450 million by selling 70 percent of the stock.
A detailed description of the plan can go to creditors for a vote once the company and creditors who oppose it agree on final wording, the judge said.
That so-called disclosure statement is used by creditors to decide how to vote on the plan. Sontchi will take that vote into consideration when he decides whether to approve the reorganization. No date has been set on when the votes are due or when Sontchi will consider approving the plan.
During a break in the hearing yesterday, the company persuaded the banks arranging the loans and the group behind the rights offering to lower their fees, said a company attorney, Paul Harner. The new breakup fee related to the offering is $11.25 million, down from $22.5 million, the lawyer said in court.
Number Sealed
The loans are being arranged by JPMorgan Chase NA and Bank of America NA, according to court documents. The banks agreed to reduce by half an undisclosed amount of money they can keep if Six Flags finds alternative financing or if their reorganization proposal is rejected. That number was sealed by the court because the banks say it is proprietary.
The total amount of fees the banks will collect should the loan go through is $33 million, including the undisclosed breakup fee, Harner said in court.
In rejecting the original financing package, Sontchi sided with the so-called SFI Noteholders, who are owed at least $870 million.
Six Flags managers are allied with the second group of noteholders, known as the SFO Noteholders, who are owed about $420 million. Together, they proposed a plan of reorganization that is being fought by the SFI Noteholders, the largest band of unsecured creditors.
Sontchi on Nov. 7 denied the SFI Noteholders the right to file their own plan, which would have given them a bigger share of the reorganized company.
The SFI notes that are due in February dropped 7.5 percent to 18.5 cents on the dollar, according to Trace the bond-price reporting agency of the Financial Industry Regulatory Authority.
Their rivals, the SFO Noteholders, would gain control of Six Flags should their proposal win court approval in the coming months, according to court records. The SFO noteholders have agreed to guarantee that all the shares in the rights offering are purchased.
The lead case is In re Premier International Holdings Inc., 09-12019, U.S. Bankruptcy Court, District of Delaware (Wilmington).