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Rating Action:

MOODY'S DOWNGRADES SIX FLAGS' SENIOR UNSECURED DEBT TO Caa1, ITS PREFERRED STOCK TO Caa2, AND SIX FLAGS THEME PARKS' SECURED BANK DEBT TO B1; THE RATING OUTLOOK REMAINS NEGATIVE

11 Nov 2004
MOODY'S DOWNGRADES SIX FLAGS' SENIOR UNSECURED DEBT TO Caa1, ITS PREFERRED STOCK TO Caa2, AND SIX FLAGS THEME PARKS' SECURED BANK DEBT TO B1; THE RATING OUTLOOK REMAINS NEGATIVE

Approximately $2.4 billion in long-term debt securities affected

New York, November 11, 2004 -- Moody's Investors Service downgraded Six Flags, Inc.'s senior unsecured debt to Caa1 from B3, its preferred stock to Caa2 from Caa1, and Six Flags Theme Parks Inc.'s secured bank credit facilities to B1 from Ba3. The company's SGL-2 liquidity rating was affirmed. The senior implied rating was also lowered to B2 from B1, and the senior unsecured issuer rating was lowered to Caa1 from B3. All ratings and rating actions are outlined below. The rating outlook remains negative.

Moody's took the following rating actions:

- Lowered $1.5 billion of Six Flags, Inc. senior unsecured notes to Caa1

- Lowered $282 million (redemption value) of Six Flags, Inc. preferred securities (PIERS) to Caa2

- Lowered $1 billion of Six Flags Theme Parks Inc. secured bank facilities to B1

- Lowered the senior implied rating to B2

- Lowered the senior unsecured issuer rating to Caa1

- Affirmed the SGL-2 liquidity rating

The downgrade reflects Moody's ongoing concern over the company's weak free cash flow characteristics and high debt burden. Moody's believes the company will have a very limited ability to reduce debt with free cash flow from operations over the next 2 years due to potentially volatile operating performance, an increase in capital expenditures, high interest expense, cash dividends on preferred securities and partnership distributions. Operating results have underperformed Moody's expectations for several years due to factors that include poor weather patterns, economic malaise, national security concerns, and pricing, promotion and, marketing mistakes. Moody's believes that despite a significant increase in capital spending for the 2005 operating season, the company could continue to experience volatile operating performance due to unpredictable economic conditions and the fragmentation of consumer leisure habits and its corresponding effect on attendance levels, which declined 4.5% in the first nine months of 2004 over the comparable period of 2003.

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

Moody's believes that in a liquidation scenario, while asset values provide bank debt holders ample coverage, bondholders have minimal cushion. Aside from cash balances, the company's assets are relatively illiquid as there are only a small handful of logical buyers for its park properties. Buyers might include Busch Gardens and Cedar Fair, who bought the recently sold Ohio amusement park, as well as possible financial players.

Moody's affirmed Six Flags, Inc.'s SGL-2 liquidity rating, which is supported by the company's strong cash position and adequate borrowing cushion under the covenants of its bank facilities for working capital needs in the first and second quarters. Aside from modest amortization payments, its first significant maturity does not occur until 2009. In 2005, Moody's forecasts that the company's gross cash flow will be insufficient to finance increased extraordinary capital expenditures of approximately $130 million, working capital and fixed charge needs. Consequently, in 2005 the company will need to utilize a significant portion of the more than $175 million in cash that was on the balance sheet as of September 30, 2004. Moody's expects the company will remain inside the financial covenants of the Six Flags Theme Parks credit facility, since it recently entered into an amendment that relaxed the financial leverage ratio through 2006 and the fixed charge ratio through 2007. 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, which are expected to increase in 2005. However, Moody's believes that the larger amount of capital investment is an extremely important component of management's strategy to reverse attendance declines and increase attendance levels in the long term.

The negative outlook reflects Moody's concern that Six Flags' increased capital expenditures for the 2005 operating season might not result in improved operating performance, with no corresponding improvement in free cash flow generation in 2006, given that the company still remains exposed to many of the risk factors that diminished operating results in the past. Moody's believes the rating could be downgraded if the operating underperformance of recent years is not reversed, cash flow breakeven is not achieved, and Moody's no longer expects that key credit metrics will improve over the intermediate-term rating horizon (specifically, that by the end of the 3rd quarter of 2006 fully-loaded financial leverage will be below 8.0x total adjusted debt (including preferred stock)-to-EBITDAR and EBITDA-to-interest is covered at least 1.7x). Conversely, the outlook would revert to stable if by that time the company achieves strong operating results, including positive free cash flow, and reduces financial leverage below 8.0x and interest coverage to 1.7x.

In fiscal 2004, Moody's expects that Six Flags' financial leverage will be very high at 9.5x and EBITDA interest coverage will be extremely modest at approximately 1.3x, however would be more than 1.4x on a full-year, pro forma basis when taking into consideration the $260 million in debt reduction, resulting from the proceeds of asset sales, that has occurred since the end of the 1st quarter. While there is some room for EBITDA margin improvement, Moody's does not expect it to return to the historical 35% levels given the company's needs to increase expenditures on improved services in order to improve the customer experience.

Six Flags Theme Parks' B1 senior secured debt, which currently comprises approximately 27% of total debt and preferred stock, benefits from ample collateral security and structural advantages, whereas Six Flags, Inc.'s Caa1 senior unsecured holding company notes remain contractually and structurally disadvantaged to the bank facilities, and thereby in a much more risky position from a relative recovery perspective in a downside scenario, as reflected in the Caa ratings.

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

New York
David Hamburger
Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

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