The $1.05 billion in new bank debt for Six Flags Theme Parks is well covered in the event of a default scenario, but the holders of $1.7 billion of unsecured debt could be in for a hairier ride. The bank debt is rated Ba2 and debt-to-EBITDA is inside 2.5 times, but total leverage is around six times and so the unsecured is B2, explained Moody's Investors Service senior analyst Glenn Eckert. One concern cited by Eckert, though, is if Six Flags ran into operational issues and had to be an asset seller. As the premier buyer and consolidator, financial sponsors would be a possibility, but Six Flags usually buys competitors, he explained.
Leverage is high due to its debt-financed acquisitions and upgrade strategy, and Six Flags is expected to invest extensively in expanding its franchise, including acquisitions, Eckert noted. "What drives return visitors is new rides and that takes capital investment," he stated. But Six Flags must focus on conserving capital, he added.
Aside from leverage, another issue for Six Flags is keeping public confidence in safety and security. "The full effect of Sept. 11 cannot be assessed as the season is just underway, but performance appears to be holding up well so far," Eckert noted. "Keeping public confidence in safety and security is a challenge." Six Flags CFO Jim Dannhauser responded, "We are the local drive-to park experience, whereas people may fear travel." Additionally, the senior unsecured has been upgraded from B3 to B2, he noted.
Six Flags has a diverse range of properties in the U.S. and abroad, mitigating regional volatility, but operating performance may be impacted by a protracted economic slowdown or adverse national weather effects, the Moody's report noted. The loan refinances the current $1.2 billion in bank facilities, which include a $600 million "B" loan (see story, page 4).