Six Flags moves quickly on refinancing to take advantage of market strength

By Paul A. Harris

St. Louis, Mo., Feb. 1 - Six Flags, Inc. saw strength in the high yield market and decided to take advantage with a drive-by offering of $480 million senior notes to refinance debt that becomes callable in April, the company told Prospect News.

"We've watched the high yield market perform well," said Six Flags chief financial officer Jim Dannhause.

"We were waiting to see how the market would continue to perform. We saw an opportunity to move quickly and accomplish very attractive pricing, which nonetheless allows people with bonds to have positive trading activity the next day. That's why we did it."

Six Flags' offering was $480 million of senior notes due Feb. 1, 2010 (B3/B), sold late Thursday via Lehman Brothers at a yield of 8.938%.

Two of the company's outstanding bonds, both of them sold in 1998, become callable on April 1, 2002, according to Dannhauser: Six Flags Entertainment Corp.'s $170 million of 8 7/8% notes and Six Flags Operations, Inc.'s $280 million of 9¼% notes, both due in 2006.

Dannhauser stated that the company intends to redeem them on the day they become callable.

"We always pay a great deal of attention to our debt maturities," he said. "We have significant optionality in the debt structure by having spread out the maturities. And when the markets are attractive we want to opportunistically do redemptions to get better terms, and continue to extend."

The terrorist attacks of Sept. 11, which have taken their toll elsewhere in the entertainment sector, left Six Flags largely unfazed, Dannhauser said.

"We felt a fall-off in the immediate aftermath," he commented. "By that time most of our parks are in weekend operation only. And so we felt a fall-off for the first three or four weeks after those tragedies.

"Then in the last part of October we saw a very strong rebound."

He also said that investors seem to see resilience in the Six Flags properties, even during economic downturns. Six Flags, Dannhauser said, was owned by Time-Warner during the recession of the early 1990, during which period same-park revenues grew at a rate of 5% for the years 1989-1991.

"That issue is one we've talked about for years, as we've been in the capital markets," Dannhauser said.

"Last year, for example, in what was a difficult economy domestically, pre-9/11, we were actually on track to deliver 3%-4% in park revenue growth."

Prior to Six Flags pricing its new senior notes, Bob Franklin, portfolio manager of the Neuberger Berman High Yield Fund told Prospect News that the sector demonstrates a propensity to withstand economic downturns.

"Their existing bonds have done well," Franklin commented. "The macro environment isn't bad for them. The roller coaster crowd will always find a way to spend a weekend there. And people who can't or don't want to travel far can go, too.

"The issue is that this is one more company where you have to forget EBITDA and look at operating cash flows less cap ex.

"That, and you have to worry about the weather."

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