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Rating Action:

Moody's upgrades Six Flags to B1 (CFR, PDR); assigns B1 rating to new first lien facility

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.

Upgrades:

..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%

Assignments:

..Issuer: Six Flags Theme Parks, Inc.

....Proposed Senior Secured Bank Credit Facility, Assigned a B1, LGD3 - 47%

RATINGS RATIONALE

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 proposed refinancing.

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 3-5 years.

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 June 2009.

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 9/30/10.

REGULATORY DISCLOSURES

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 Analytics information.

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.

New York
John E. Puchalla
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
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.

Moody's upgrades Six Flags to B1 (CFR, PDR); assigns B1 rating to new first lien facility
No Related Data.
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