Six Flags' debt mixed as company files for bankruptcy; Lear bonds weaker as equity downgraded

By Stephanie N. Rotondo

Portland, Ore., June 15 - In the distressed debt world Monday, Six Flags Inc. was the nom du jour as news came out that the amusement park operator had filed for bankruptcy.

Though the news was not much of a surprise - several market sources had predicted the filing months ago - the company's bonds reacted by ending weaker. However, the company's bank debt headed for higher ground, as lenders expected to be paid in full through new debt and equity.

Meanwhile, Lear Corp.'s notes were also softer on the day. The bonds weakened along with its equity counterpart after a Barclays analyst lowered his rating on the stock.

Overall, traders characterized the trading session as quiet.

"It was a sleeper," said one trader. "Volumes just made it to $1 billion" in the secondary arena.

When asked why the day was so lackluster, the trader said it was "part summer, part Monday, part stock market down 200 points."

"Some stuff traded, but it was a quiet day, really," another trader said.

"In general, I'd say the market was a touch weaker given the general tone of things," said another market player.

Six Flags debt dips on bankruptcy news

Six Flags' debt ended the session mixed Monday after the company said it had filed a prepackaged bankruptcy plan.

In the bonds, traders saw the 9 5/8% notes due 2014 falling anywhere from 1.5 to 2 points to 10 bid, 11 offered. One source also saw the 9¾% notes due 2013 "around 11. That's down from 12 bid, 13 offered, and just a couple weeks ago it was at 19."

Yet another source saw the 12¼% notes due 2016 falling into the mid-60s.

"On a relative basis, that's down about 2 points," he said.

Given the company's current bankrupt status, the notes are trading flat, or without accrued interest.

Meanwhile, the amusement park operator's term loan B headed higher, likely due to bank lenders treatment under the reorganization plan, according to traders.

One trader had the term loan B quoted at 92½ bid, 94¾ offered, up from the low-to-mid 80s at the end of last week, a second trader had the loan quoted in the area of 92¼ to 92½ bid, 94¼ to 94½ offered, and a third trader had the loan quoted at 92½ bid, 941/2, up from around 82 bid on Friday.

The plan of reorganization has unanimous support of the lenders' steering committee and JPMorgan, the administrative agent for the company's $1.1 billion senior secured credit facility. Lenders will be paid in full with new debt and equity, according to the terms of the plan.

Upon confirmation of the plan, Six Flags' debt will be reduced by approximately $1.8 billion. Also, more than $300 million in mandatorily redeemable preferred stock obligations would be eliminated.

"The current management team inherited a $2.4 billion debt load that cannot be sustained, particularly in these challenging financial markets," said Mark Shapiro, president and chief executive officer, in a news release. "As a result, we are cleaning up the past and positioning the company for future growth."

On the effective day of the plan of reorganization, Six Flags will obtain a new $150 million four-year secured revolving or multi-draw term credit facility and a new $600 million five-year term loan, according to an 8-K filed with the Securities and Exchange Commission on Monday.

Pricing on the term loan will be Libor plus 700 basis points with a 2.5% Libor floor. In the first two years, 150 bps of the interest rate may be paid in kind.

Call protection on the term loan is 103 in year one, 101.5 in year two and par thereafter.

Financial covenants under the term loan will include leverage requirements, minimum interest coverage and maximum capital expenditures.

Security for the revolver will be first liens on substantially all of the company's assets. These liens will be pari passu with the liens securing the new term loan but the revolver will rank as "first out" and the term loan will rank as "last out".

The filing also said that a traditional first-lien/second-lien structure could be considered if necessary to raise the new revolver.

Under Six Flags' bankruptcy plan, existing credit facility obligations will be repaid in full by distribution of the new term loan and shares of common stock having a value equal to the balance of such claim and representing 92% of the issued and outstanding new common stock.

"Loan guys are the guys that will be owning this thing," one of the traders remarked.

All claims other than the credit facility obligations will be unimpaired.

Noteholders holding Six Flags Operations Inc. paper will receive 7% of the new equity in the company, while Six Flags Inc. senior unsecured will get 1% of the new stock.

The company's existing equity holders will receive no recovery.

After the news was released, both Moody's Investors Service and Fitch Ratings downgraded the New York-based company.

"While 2008 was a solid year for regional theme parks despite some economic weakness and high energy prices, Fitch expects the 2009 season to be a challenging year as pressure on discretionary consumer spending patterns could result in weaker attendance and reduced in-park spending," the agency said in a press release. "However, Fitch believes the company should have sufficient liquidity to pay operating costs, fund vendor payments and finance maintenance capital expenditures during the proceedings. Fitch does not expect the composition of the portfolio to change materially as a result of the bankruptcy, as theme park asset sales are not likely to command attractive prices in this environment.

"Given the traction that management has had with the operating elements of its turnaround strategy and given the bankruptcy is more the result of capital structure issues rather than operating problems, Fitch would not expect management's approach to the business to change meaningfully," the release continued.

Lear bonds fall on equity downgrade

Automotive parts supplier Lear saw its bonds declining as a Barclays analyst downgraded his rating on the company's equity.

A market source saw the 5¾% notes due 2014 falling a touch to 31.5 bid. Another placed the issue at 31 bid, versus 33 bid, 34 offered last week.

Another market player called the 8½% notes due 2013 and the 8¾% notes due 2016 1.5 to 2 points softer at 27 bid, 29 offered.

In a note to investors, Barclays analyst Brian Johnson dropped the auto seat manufacturer's stock to "underweight" from "neutral," and warned that a financial restructuring could leave little left over for shareholders.

"Whether the company restructures in or out of bankruptcy, there isn't likely to be much value left for shareholders," Johnson wrote.

The Southfield, Mich.-based company is working to secure revisions to its loan terms. Currently, the company is operating under a waiver agreement on some conditions. The waiver expires June 30.

Also, the company has entered a 30-day grace period after missing a $38 million interest payment on June 1.

Elsewhere in the autosphere, a trader saw $20 million of Ford Motor Co.'s 7 3/8% notes due 2009 trading at 98.75 bid, 99 offered. He also saw General Motors Corp.'s benchmark 8 3/8% notes due 2033 trade at 13.75, with $8 million changing hands.

Financials, health care higher

Elsewhere in the world of distressed, a trader saw a lot of junk market interest in split-rated or 4-B junk-rated hybrid tranches of high-grade financial companies, which are trading like anything other than high-grade or near-high grade credits.

"The hybrids seem to be in vogue," he said, quoting Regions Financial Corp.'s variable-rate notes due 2047 (Ba2/BBB) unchanged at 67.5, on $45 million traded, which he said was the most active issue in the high-yield market on Monday "by far." He called it "a little unusual that $45 million would trade and be unchanged from Friday - but that's what it is."

He also saw Genworth Financial Inc.'s 6.15% variable-rate notes due 2066 (Ba1/BB+) at 45 3/8 versus 41 on Friday on $18 million traded, while Lincoln National Corp.'s variable-rate notes due 2066 (Ba1/BBB) were trading at 67 versus 62.75 on Friday, on $10 million traded

Cardinal Health 409 Inc.'s 9½% notes due 2015 were seen at 52.75 bid, up 5 points from 47.75 on Friday, on $12 million traded.

Sara Rosenberg and Paul Deckelman contributed to this article.

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