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Rating Action:

MOODY'S DOWNGRADES SIX FLAGS' SENIOR UNSECURED DEBT TO B3, ITS PREFERRED STOCK TO Caa1, AND SIX FLAGS THEME PARKS' SECURED BANK DEBT TO Ba3; THE OUTLOOK IS NEGATIVE.

11 May 2004
MOODY'S DOWNGRADES SIX FLAGS' SENIOR UNSECURED DEBT TO B3, ITS PREFERRED STOCK TO Caa1, AND SIX FLAGS THEME PARKS' SECURED BANK DEBT TO Ba3; THE OUTLOOK IS NEGATIVE.

Approximately $3 billion of long-term debt instruments affected.

New York, May 11, 2004 -- Moody's Investors Service downgraded Six Flags, Inc.'s senior unsecured debt to B3 from B2, its preferred stock to Caa1 from B3, and Six Flags Theme Parks Inc. secured bank debt to Ba3 from Ba2. The company's SGL-2 liquidity rating was confirmed. The senior implied rating is B1. In addition, Moody's Investors Service assigned a Ba3 rating to Six Flag's Theme Parks Inc.'s $130 million expansion of its term loan facility. The outlook is negative.

Moody's took the following rating actions:

- Lowered $1.6 billion of Six Flags, Inc. senior unsecured debt to B3

- Lowered $287.5 million (redemption value) of Six Flags, Inc. preferred securities to Caa1

- Lowered $1 billion of Six Flags Theme Parks Inc. secured bank facilities to Ba3

- Confirmed the SGL-2 liquidity rating

- Confirmed the B1 senior implied rating

- Placed a negative outlook on the B1 senior implied rating and all outstanding securities

The downgrade reflects Moody's ongoing concern over the company's weak free cash flow characteristics and high debt burden. Aside from asset sales, the company demonstrates limited ability to reduce debt with free cash from operations. Operating results under-performed expectations for several years due to factors that include poor weather patterns, economic malaise, national security concerns, and pricing mistakes. Moody's believes that the company will continue to evidence weak and volatile operating performance. Moody's believes that Six Flag's free cash flow available to reduce debt will remain limited by the capital intensity of its business and its high interest burden. Moody's remains concerned that asset values provide bondholders little to no cushion in a liquidation scenario. Aside from cash balances, the company's assets are relatively illiquid. There are only a small handful of logical buyers for its park properties. Buyers might include Busch Gardens and Cedar Fair, as well as possible financial players.

Moody's confirmed Six Flags, Inc.'s SGL-2 liquidity rating driven by the company's good cash position, un-drawn availability cushion, and room under the covenants of its bank facility. Aside from modest amortization payments, its first significant maturity does not occur until 2009. Moody's forecasts that the company's cash and operating cash flow in 2004 will be sufficient to finance required capital expenditures, working capital and fixed charge needs. Moody's expects the company to remain inside the financial covenants of the Six Flags Theme Parks credit facility, which restricts leverage to 3.25x on a debt-to-EBITDA basis, and requires minimum coverage levels of 3.5x and 1.05x for EBITDA-to-Interest and EBITDA-to-fixed charges, respectively, among other tests. The credit facility ignores parent company debt. Six Flags' assets are substantially committed to its bank lenders, somewhat limiting its alternate liquidity options. To meet modest cash shortfalls, the company could defer a portion of its upgrade capital expenditures. However, long-term, ongoing investment is required to maintain attendance levels.

The negative outlook reflects Moody's concern that Six Flags' will continue to generate only limited free cash flow which will not be sufficient to materially reduce debt, and that the company remains exposed to many of the risk factors that diminished operating results in the past. Flat or down operating results over the coming high season may result in a further downgrade. Conversely, the outlook may be stabilized if the company achieves strong operating results, free cash flow, and related debt reduction.

Six Flags' leadership position in the regional theme park industry, high barriers to entry, and benefits of geographic diversity continue to support the rating.

Moody's expects Six Flags' financial leverage (debt plus preferred stock to EBITDA) to continue to exceed 7.5x, and likely to exceed 6.5x even on a net basis. Moody's estimates that total debt to free cash flow will continue to exceed 15x. Moody's expects Six Flags' EBITDA margins to remain under pressure and unlikely to return to their historical 35% levels. Also, given high capital intensity and fixed charges, Six Flags generally converts less than 15% of its EBITDA to free cash flow. Interest coverage based on EBITDA-to-interest is fairly modest at 1.7x. Based on a more stringent test, applying free cash flow (adding back interest) divided by interest, results in razor thin coverage that barely exceeds 1.2x.

Six Flags Theme Parks' Ba3 senior secured rating benefits from security and structural advantages, whereas Six Flags, Inc.'s B3 senior unsecured holding company notes remain disadvantaged to the bank facilities in the form of both structural subordination and collateral.

Six Flags, Inc., headquartered in Oklahoma City, Oklahoma, is the world's largest regional theme park company.

New York
Glenn B. Eckert
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Russell Solomon
Senior Vice President
Unknown Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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