Six Flags Noteholders Stage Bankruptcy Coup

September 22nd, 2009 by Reed Allmand

According to an article in the Bloomberg, Six Flags Inc. noteholders presented a competing bankruptcy plan to reorganize the bankrupt Six Flags theme park, accusing the Six Flags’ management team of creating a plan that only looks out for their interests.

The article said:

“Noteholders, who are collectively owed $1.3 billion, would split the company among themselves and fully pay off Six Flags lenders under the plan… The noteholders asked U.S. Bankruptcy Judge Christopher Sontchi for permission to file the competing plan and allow creditors to vote on it. Six Flags managers have offered a plan that would give 92 percent of the New York-based company to lenders and potentially hand company officials an equity stake.”

The noteholders accused the theme park’s management team of creating a Chapter 11 bankruptcy plan that was “ill-conceived, poorly designed and non-confirmable.” They also claimed that the Chapter 11 bankruptcy plan would prevent the vast majority of creditors from collecting on their debt. Under the management bankruptcy plan, lenders would receive control of the company and a new $600 million loan in exchange for canceling $1.13 billion in debt. Only two groups of noteholders would be given 8 percent of the new stock. And as much as 10 percent of the new stock would be set aside for management bonuses. Noteholders say that this is bankruptcy plan fails to adequately provide for creditors while lining the pockets of the management team.

But before the noteholders can pursue their rival bankruptcy plan, Bankruptcy Judge Sontchi must end the manager’s exclusive right to reorganize the company.  If the bankruptcy judge chooses to end the managers’ exclusive right to reorganize under Chapter 11 bankruptcy, the noteholders would have a right to file their competing bankruptcy plan. But they would need to convince the creditors that the plan is credible before it could be confirmed.