Can Six Flags Get Off the Debt Rollercoaster?

| About: Six Flags (SIX)
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Amusement park giant Six Flags Inc. (NYSE:SIX) announced strong numbers for Q308. Park attendance was up by 200,000 in the quarter and by 600,000 year-to-date. The company has announced a park opening in Dubai and has another Middle East opening on the horizon. It's also in talks to open in South Korea.

Logically amusement parks will fare relatively better in a downturn as people travel less, stay closer to home and look for better value for their money. Attendance was up as was advertising, because advertisers go where the people are.

Despite all this, Six Flags shares are trading around $0.30 and bonds are in the dumps. Debt is threatening to undermine the Six Flags turnaround story. Fitch Ratings put the company on ratings watch late Tuesday. Fitch believes Six Flags will have trouble raising money to repay the $287.5 million debt which comes due in August 2009.

From Six Flags Inc.'s Q308 conference call:

Kids pricing ['everyone pays kids price' promotional] and value resonated with the consumers.

With respect to our sponsorship and licensing business, we originally targeted $51 million of revenues this year and we increased guidance last quarter to $56 million. We are now expecting to reach approximately $59 million for the 2008 year which compared to approximately $38 million in 2007.

Improving cash flow and costs:

Six Flags will finish the year free cash flow positive… We delivered over $50 million of cash cost efficiencies… Unfortunately due to higher then anticipated utility costs, general liability, and foreign exchange impacts, as well as having to use more cash based incentive compensation rather then stock based, we're going to come up short of our original target.

A positive outlook, but Six Flags drew down their entire credit facility in October:

We're comfortable that we have sufficient cash and liquidity to fund our 2009 off season and although our $275 million revolver was paid down to zero at September 30, in early October 2008 we drew down the entire available amount or approximately $240 million to ensure the availability of funds for the 2009 off season in light of the state of the global credit markets, and potential funding concerns related to certain lenders.

The redemption date for our mandatorily redeemable preferred stock, or [PRS] is August 2009 and we have approximately $130 million of senior unsecured notes due in February 2010.

If they need this much of working capital in the off-season, and they used up their revolver, how will they pay off debt due in 2009?

We generally use around $180M-$200 million… of cash need for the low season which basically gets us up through Memorial Day… [The money drawn from the revolver] can't be used to buy back debt because we have restricted payment covenants. [So] it's going to be used for working capital to ensure that we have the funds to go through the off season. Again, our revolver we had reason to believe had been traded and participated out to various hedge funds and we wanted to ensure given lack of transparency related to certain types of investors, that we were going to be able to have those funds and ensure we had those funds through our low season.