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15 Nov 2010
Approximately $1.1 billion of debt instruments affected
New York, November 15, 2010 -- Moody's Investors Service upgraded Six Flags Theme Parks,
Inc.'s (Six Flags) Corporate Family Rating (CFR) and Probability
of Default Rating (PDR) each to B1 from B2 and assigned a B1 rating to
the company's upsized $1.1 billion senior secured
first lien credit facility. Six Flags plans to utilize the net
proceeds from the facility along with approximately $65 million
of existing cash to refinance $745 million of outstanding first
lien term loans, retire its $250 million senior secured second
lien term loan and pay transaction fees and expenses. The rating
outlook is stable.
..Issuer: Six Flags Theme Parks, Inc.
....Corporate Family Rating, Upgraded
to B1 from B2
....Probability of Default Rating, Upgraded
to B1 from B2
....Existing Senior Secured First Lien Bank
Credit Facility, Upgraded to Ba3, LGD3 - 36%
from B1, LGD3 - 37%
....Existing Senior Secured Second Lien Bank
Credit Facility, Upgraded to B3, LGD5 - 86%
from Caa1, LGD5 - 87%
..Issuer: Six Flags Theme Parks, Inc.
....Proposed Senior Secured Bank Credit Facility,
Assigned a B1, LGD3 - 47%
The upgrade of the CFR to B1 reflects Moody's expectation that Six
Flags will be able to sustain the earnings improvement and lower leverage
level achieved since it emerged from Chapter 11 bankruptcy on April 30,
2010. Six Flags' net $45 million debt repayment in
connection with the refinancing, the August 2010 $25 million
first lien debt pay down, and improved operating performance will
lower debt-to-EBITDA to approximately 5.0x (LTM 9/30/10
incorporating Moody's standard adjustments, the proposed refinancing,
and the partnership park puts as debt) from the 7.1x level (pro
forma 2009) estimated at the time of emergence. Moody's anticipates
attendance will continue to gradually recover from the 2009 downturn over
the next 2-3 years, and this recovery along with the company's
cost reduction and yield management strategies are expected to grow EBITDA.
Cash interest expense will decline due to the reductions in debt and the
credit facility spread. The B1 rating on the proposed first lien
facility (consisting of a 6-year $950 million term loan
and the existing 5-year $120 million revolver) is one notch
below the revised Ba3 rating on the existing first lien facility despite
the upgrade of the CFR as the meaningful layer of second lien debt would
no longer exist to cushion losses for first lien creditors (as reflected
in the higher loss given default assessment of 47% vs. 36%
on the first lien loan prior to the refinancing).
Moody's anticipates that Six Flags will begin to distribute cash
to shareholders over the next several years if the improvement in operating
performance continues. The existing first lien credit agreement
limits restricted payments to $10 million in 2010 with the limit
growing (in $10 million annual increments) to $40 million
in FY 2013. The proposed facility includes an additional restricted
payments basket of up to 50% of the company's share of excess
cash flow, as defined in the credit agreement. Moody's
estimates this will provide approximately $25 million of incremental
restricted payments capacity in each of 2010 and 2011. Moody's
anticipates Six Flags will utilize the restricted payments capacity to
fund a dividend and/or share repurchases from free cash flow.
The rating on Six Flags' existing first lien credit facility was
upgraded to Ba3 from B1 and the rating on its $250 million senior
secured second lien term loan was upgraded to B3 from Caa1. These
ratings will be withdrawn if the proposed refinancing is completed and
the loans are repaid. The loss given default assessments on these
instruments were updated to reflect the current debt mix prior to the
Six Flags' B1 CFR reflects the sizable attendance and revenue generated
from the geographically diversified regional amusement park portfolio,
lower margins than other regional theme park operators, vulnerability
to cyclical consumer spending, high leverage, and liquidity
and funding risks associated with minority holders' annual right to put
their share of partnership parks to Six Flags Entertainment Corporation
(SFEC; Six Flags' parent). The new management team installed
after SFEC and Six Flags emerged from bankruptcy is executing a broad
cost restructuring plan and implementing new marketing strategies to reduce
the margin gap relative to the industry and increase earnings.
These efforts build upon the earnings progress made after the Dan Snyder-led
proxy takeover at the end of 2005 led to new management and progress in
making the parks more family-friendly and restoring the company's
image. Moody's believe these actions along with alleviating
the burden of the previously over-levered capital structure will
lead to improved park performance. The amusement park industry
is also mature and operators must compete with a wide variety of leisure
and entertainment activities to generate consumer interest, with
attendance growth in the low single digit range expected over the next
The SGL-4 speculative-grade liquidity rating continues to
reflect the risk associated with funding minority interest puts should
holders exercise the maximum amount of potential obligations putable through
May 2011. Moody's believes the company's improved leverage
profile and cash balance provide additional capacity to meet put exercises.
However, Six Flags would likely need additional external funding
from uncommitted sources to fund a full exercise of the puts in part because
the annual exercise date occurs near the weakest point in its seasonal
cash cycle. Moody's anticipates in the CFR that annual put
exercises are closer to historical norms (less than $7 million
per year since 1999 except for $66 million in 2009) rather than
the full amount that is assumed in the SGL rating, and that the
puts can be funded from existing capacity on the $120 million revolver
and $150 million multiple draw term loan facility from Time Warner.
Downward rating pressure could occur if acquisitions, cash distributions
to shareholders or declines in attendance and earnings driven by competition
or a prolonged economic downturn lead to debt-to-EBITDA
above 5.5x or free cash flow-to-debt less than 4%.
Ratings could also be pressured if liquidity weakens -- including
if concerns arise regarding the company's ability to meet partnership
put obligations -- or the company's financial policies
become more aggressive.
A good liquidity position including sufficient cash, projected free
cash flow and committed financing to fully cover all potential partnership
park put exercises would be necessary for an upgrade. In addition,
Six Flags would need to continue to improve park operating performance
and margins, generate consistently strong free cash flow-to-debt
and reduce debt-to-EBITDA meaningfully to be upgraded (these
ratios incorporate Moody's standard adjustments and include the partnership
puts as debt).
Please see the credit opinion posted to www.moodys.com for
additional information on Six Flags' ratings.
Moody's last rating action on Six Flags was on May 4, 2010 when
the company was assigned a B2 CFR, B2 PDR, B1 senior secured
first lien credit facility rating, and Caa1 senior secured second
lien credit facility rating.
The principal methodologies used in this rating were Moody's Approach
to Global Standard Adjustments in the Analysis of Financial Statements
for Non-Financial Corporations - Part I published in February
2006, and Loss Given Default for Speculative-Grade Non-Financial
Companies in the U.S., Canada and EMEA published in
Six Flags' ratings were assigned by evaluating factors that Moody's considers
relevant to the credit profile of the issuer, such as the company's
(i) business risk and competitive position compared with others within
the industry; (ii) capital structure and financial risk; (iii)
projected performance over the near to intermediate term; and (iv)
management's track record and tolerance for risk. Moody's compared
these attributes against other issuers both within and outside Six Flags'
core industry and believes Six Flags' ratings are comparable to those
of other issuers with similar credit risk.
Six Flags along with its parent SFEC, headquartered in Dallas,
TX, is a regional theme park company that operates 19 parks spread
across North America. The park portfolio includes 15 wholly-owned
facilities (including parks near New York City, Chicago and Los
Angeles) and three consolidated partnership parks - Six Flags over
Texas (SFOT), Six Flags over Georgia (SFOG), and White Water
Atlanta - as well as Six Flags Great Escape Lodge, which
is a consolidated joint venture. SFEC currently owns 52.7%
of SFOT and approximately 29.7% of SFOG/White Water Atlanta.
Revenue including the consolidation of the partnership parks and joint
venture was approximately $970 million for the LTM period ended
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
John E. Puchalla
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's upgrades Six Flags to B1 (CFR, PDR); assigns B1 rating to new first lien facility
250 Greenwich Street
New York, NY 10007
No Related Data.
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