Six Flags bonds continue climb as Gates criticizes management; Fisher plans roadshow for notes

By Paul Deckelman and Paul A. Harris

New York, Sept. 1 - Six Flags Inc. bonds continued to firm Wednesday, up for the second straight day in apparent response to the prospect that criticisms by major stockholders of the way current management is running the New York-based theme park operator may lead to needed changes that would improve the company's performance.

New-deal activity remained quiet but for the news that Fisher Communications Inc. plans to begin a roadshow Tuesday for a $150 million offering of 10-year notes.

Six Flags' 8 7/8% notes due 2010 - which had firmed 3½ points on Tuesday - were quoted up nearly another two points Wednesday at 94.5 bid. Its 9 5/8% notes due 2015 and 9¾% notes due 2013 both ended at 95 bid, a trader said, about 2½ points better on the session - on top of the more than four-point gain they notched on Tuesday. The company's 9½% notes due 2009 were seen up perhaps a point, at 98 bid.

Meanwhile, the company's New York Stock Exchange-traded shares - which had zoomed nearly 25% in Tuesday's dealings - rose again, but only slightly, when all was said and done. They had shot as high as $6.15 in early intra-day trading, well up from Tuesday's close at $5.57, but came off that peak level on profit-taking, finishing up a much more sedate eight cents (1.44%) at $5.65, although volume of 4 million shares was four times the usual activity level.

The shares had jumped, and the bonds had likewise climbed four to five points Tuesday on the news that Washington Redskins owner Daniel Snyder had accumulated an 8.76% stake in the company in a series of recent open-market stock purchase transactions - and was challenging management to improve the company's performance, including by the possible further sale of assets (Six Flags has already unloaded its European division as well as an underperforming Cleveland-area park), or possibly even a merger or sale of the whole company itself.

Late in the day, word began to spread that even bigger holder Bill Gates is also unhappy with the way things have been going at Six Flags, and the Gates news, on top of Snyder's criticisms, helped spur the stock and bonds for a second day.

In a schedule 13D filing later Tuesday with the Securities and Exchange Commission, Gates' Cascade Investments LLC vehicle - which owns 10.81 million shares, or about 11.5% of the company's outstanding 93 million share float - said that the Microsoft Corp. chairman has "become increasingly dissatisfied with the financial performance" of Six Flags.

As a result, the filing said, Gates/Cascade "intend to engage in discussions with the management of the issuer [Six Flags] and/or the presiding director of the non-management members of the issuer's board of directors or other members of the board, with respect to certain issues relating to, among others, the issuer's strategic decision-making and issuer's recent financial and operating performance."

The filing further warned that Gates "may also approach other holders of issuer's securities in order to discuss similar matters of mutual interest, including, but not limited to, the possibility of nominating a person to become a director."

It also noted that while Gates/Cascade had previously reported the billionaire's interest in Six Flags to the SEC in filings under Schedule 13G, which are made by holders who have no intent of "changing or influencing control of the issuer," he is now reporting his interest in Six Flags in a 13D filing, since his possible actions "would have the purpose and could have the effect of influencing the management and policies of the issuer." In other words - the boilerplate legalese signals a change to a more active stance by the heretofore passive investor Gates.

The world's richest man is said by published reports to be the second largest shareholder in the company after the investment advisory firm of Wallace R. Weitz & Co., a 12% holder. Snyder is believed to now be the third largest single shareholder.

Snyder's SEC filing Monday sounded many of the same themes as Gates' subsequent filing, calling Six Flags' "undervalued," slamming current management for having "failed to implement measures to increase revenues and decrease expenses, and its failure to do so has caused the company to be continuously outperformed by its peers in the amusement, recreation and leisure industry."

The filing further states that Snyder and his investment vehicle, Red Zone LLC, "believe their investment has significant potential for increased value and intend to seek to influence management and the board of directors to take steps to maximize stockholder value." It said Snyder may consider seeking representation on Six Flags' board of directors, and may also "encourage the company to maximize stockholder value through a possible merger, sale of the company's assets, consolidation, business combination or a recapitalization or refinancing."

The filing also leaves the door open for further Six Flags stock purchases by Snyder.

Six Flags has had no public comment on either the Snyder or the Gates filings.

Industrials gain

Elsewhere, "industrials were pretty strong - though I don't know why," said a trader, who quoted Goodyear Tire & Rubber Co.'s 7.857% notes due 2011 up three quarters of a point to 95 bid and AK Steel Corp.'s 7 7/8% notes due 2009 also three-quarters of a point better at 97.

Middletown, Ohio-based steelmaker AK said on Tuesday that it would increase prices by anywhere from 3% to 6% on its light-gauge stainless steel products shipped on and after Sept. 13.

AK - which produces flat-rolled carbon, stainless and electrical steel products, as well as carbon and stainless tubular steel products, for the automotive, appliance, construction and manufacturing markets - said that it will boost gauge and width extras for certain of its "200," "300" and "400" series stainless steel sheet products. The company also indicated that it will revise slitting extras for stainless steel pipe- and tube-quality strip.

Mark IV higher as rumors spread

Another industrial name that the trader saw better Wednesday was Mark IV Industries Inc., whose 7½% notes due 2007 moved up to 94.75 bid, 95 offered, a one-point gain from Tuesday's levels "on size," with a couple of million bonds traded Wednesday against a backdrop of very quiet late-summer market activity.

The trader suggested that the bonds were being pushed up by market rumors - so far unconfirmed - that the privately held Amherst, N.Y.-based auto components maker might be receiving an equity infusion from an investor. However, he cautioned that "it's just rumors, and that company is always rumored" to be getting an infusion, suggesting that the equity infusion buzz be taken with a grain of salt.

Toys bucks buying trend

Overall, he said, "the market is in a vacation mode, and the bias is better." People, he said, "must have had their buying hats on," now that end-of-the-month window-dressing sales were out of the way.

However, he said, a notable exception to the generally positive trend was Toys "R" Us Inc., which he saw down about one-quarter to half a point - the Wayne, N.J.-based toy and baby-merchandise retailer's 7 7/8% notes due 2013 have recently hovered around the 99 bid level.

Airline issues also "continue to get weaker," he said, with Delta Air Lines Inc.'s 8.30% notes due 2029 seen off a little at 28 bid, 28.5 offered.

A trader saw The Williams Cos., Inc.'s 8 1/8% notes due 2012 a point better at 116, although there seemed to be no fresh news out on the Tulsa, Okla.,-based gas pipeline operator. He also quoted the company's 8¾% bonds due 2032 as having pushed as high as 112 bid from recent levels around 108, while cautioning that the movement came against a backdrop of very thin trading.

He also saw a firming trend in Appleton Papers Inc.'s 8 1/8% notes due 2011, up 1¼ points at 102.75 bid, and its 9¾% notes due 2014 at 102 bid, up from 101.25. There was no fresh news seen out on the Appleton, Wis.-based maker of specialty paper and paperboard products.

Hanger loses on downgrade

Hanger Orthopedic Group's 10 3/8% notes due 2009 were seen down about a point at 92 bid, after Moody's Investors Service downgraded the Bethesda, Md.-based orthopedic and prosthetic services provider's senior unsecured debt to B3 from B2 and revised the company's outlook to negative.

Moody's said it downgraded the company's ratings "as a result of the continued deterioration in performance," particularly in the second quarter ended June 30.

Besides the deterioration in performance, the ratings agency also cited Hanger's "high leverage, the company's high reliance on government funds and Medicare's recent decision to freeze rates for three years, pricing pressure from large commercial payors, a competitive environment, and weakening industry utilization and growth trends." Moody's said its concerns over these issues "are compounded by the number of other problems that have arisen at the company recently, including billing discrepancies at the West Hempstead center and the accounting error related to uncollectible receivables recently uncovered."

Tenet bonds ignore sale news

Also in the healthcare area, Tenet Healthcare Corp. bonds were seen unchanged despite the news that the Santa Barbara, Calif.-based hospital operator - currently in the midst of divesting almost a quarter of its properties - announced that it had agreed to sell three Los Angeles-area facilities to Centinela Freeman HealthSystem for undisclosed terms. It also announced an agreement to sell a Louisiana hospital for net proceeds of about $33 million.

Later in the day came news that federal authorities are investigating allegations of kickbacks and other financial improprieties at its San Ramon Regional Medical Center near San Francisco. The feds subpoenaed documents requesting details about physician relationships and financial arrangements, and the company said it is cooperating. It is the latest in a series of probes of alleged irregularities at a number of Tenet facilities that local federal prosecutors began conducting in 2002.

However, Tenet's 8% notes due 2005 were unchanged at 102.25 bid and its 7 38% notes due 2013 were at 98, also unchanged on the session.

Fisher breaks primary calm

The otherwise still waters of the U.S. high yield primary market rippled Wednesday with news of a $150 million 10-year deal (B2) from first-time junk issuer Fisher Communications Inc.

The Wachovia Securities-led deal, slated to start Tuesday, appears to be the first one to move to the starting line in what primary market sources anticipate will be a busy post-Labor Day week.

The Seattle television and radio broadcaster expects to price the notes on Wednesday, Sept. 15.

The company will use the proceeds to refinance its two existing credit facilities and to terminate and/or settle its obligations under its existing forward sales contracts covering shares of Safeco Corp. common stock owned by Fisher Communications.

"They own a substantial amount of shares in Safeco Corp," an informed source explained. "They have a variable forward sale on it, which they are hoping to pay off and unwind through this transaction."

A crowded field

Although no other issuers announced roadshow starts during the Monday session - a day that produced no primary market news aside from Fisher Communications - sources have been telling Prospect News throughout the present week that the post-Labor Day primary market figures to be a busy one.

The reasons given are various: 1) tight new issue supply in a market in which at present there is a lot of cash chasing yield, 2) low defaults and a lack of negative credit events rendering the asset class even more attractive, 3) a desire on the part of issuers and their underwriters to conclude business in front of the Nov. 2 U.S. presidential elections, which at very least will detract attention from the market.

However one source who spoke Wednesday with Prospect News said that the post-Labor Day primary market scenario is not clear at present.

"We're hearing different things," said the source. "We're hearing that there is going to be a substantial number of people announcing roadshow starts.

"But we're also hearing that next week we won't so much be seeing new deals but possibly some drive-bys right after the holiday.

"Given that there was absolutely nothing this going on this week you have to believe that the potential is there for it to be a big week next week."

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