The Work

November 30, 2009 5:54 PM

Two Bondholder Groups Vie for Six Flags Control

Posted by Julie Triedman

The Six Flags bankruptcy is on a roller-coaster ride. On Sunday, a group of creditors who are collectively owed more than half of Six Flags's outstanding unsecured debt floated a new plan to take over the company, Reuters reported. The proposal, challenging a previous plan pitched by a separate set of bondholders, sets the stage for a contest over control of the ailing theme park operator.

The bankruptcy has spawned four alternative plans in the six months since Six Flags filed for Chapter 11 and has created a cottage industry for several well-known bankruptcy lawyers from Am Law 100 and top Wilmington firms.

The new would-be owners of the company, an informal creditors group led by hedge fund Stark Investments, have tapped Thomas Lauria of White & Case, along with local counsel at Wilmington-based Bayard, P.A. The debtor is looking to bankruptcy partner Paul Harner and litigation partner Steven Catlett of Paul, Hastings, Janofsky & Walker. Six Flags also has tapped Richards Layton & Finger's Daniel DeFranceschi as local counsel.

The JPMorgan Chase & Co.-led group of senior secured lenders is looking to Kenneth Ziman of Simpson Thacher & Bartlett, with Adam Landis of Wilmington's Landis Rath & Cobb as local counsel. The official committee of unsecured creditors has tapped Edward Weisfelner of Brown Rudnick, along with Wilmington's Pachulski Stang Ziehl & Jones's Laura Jones as cocounsel.

Six Flags filed for bankruptcy in June with $2.5 billion in debt. This latest group to offer up a new restructuring plan collectively holds some $500 million of $870 million in outstanding unsecured debt. In addition to Milwaukee-based Stark, the group includes CQS Directional Opportunities Master Fund and Tricadia Capital Management, Dow Jones reported.

The initial plan, put forth at the time of the bankruptcy filing, proposed transferring 92 percent of the company's equity to a group of secured bank lenders led by JPMorgan in exchange for slashing company debt to $600 million. But that plan met with immediate and intense opposition by unsecured creditors. Senior unsecured creditors would have received a relatively small stake in the emerged company, while Stark and the junior class of note holders were slated to receive only about a 1 percent equity share.

A second alternative plan backed by another distressed investor, Avenue Capital Management, which holds a class of unsecured debt that must be paid out ahead of the Stark group's, was proposed in September and was adopted by the company itself in an amended reorganization plan filed November 9. Jason Staib of Blank Rome is leading Avenue Capital's legal team. (A third plan, proposed in early October by a group of equity holders, was rejected by the bank lenders.)

Avenue Capital's plan will be considered at a preliminary hearing in U.S. bankruptcy court in Wilmington this Friday. Under the plan, senior lenders would raise $450 million to finance the company's exit, be repaid in full for their notes, and end up with most of the equity in the reorganized company. But junior note holders like Stark would fare only a little better than they would under the bank lenders' plan, receiving just a 5 percent equity stake, according to several news reports.

On Sunday, lawyers for the junior note holders group presented Six Flags's board with signed commitments for $420 million in new capital, enough to pay off rival bondholders. Under the new plan, the group stands to receive more than 80 percent of the company's equity. Bank lenders and senior note holders would be paid in full.

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