Term Paper: Six Flags

1. What were the courses of the financial distress Six Flags encountered that led to the company’s filing for bankruptcy protection in 2009? And why was H Partners confident about Six Flags’ turn-around then?

Answer:

1.1 The courses of the financial distress:

External factors: a. The deteriorating economy led to lower in park consumption (as average guest spending declined by 3%) b. The onset of the H1N1 “swine flu” virus, inclement weather, and negative media reports surrounding the company’s impending bankruptcy c. Global debt markets were experiencing turmoil, making it challenging for the company to refinance.
Internal factors: a. The theme park industry are heavy-assets industry which means it should invest a lot initially, and withdraw cost in relatively long run : according to the “Exhibit 6 Six Flags Properties” its Payback Period of different projects vary from 2 to 10 years b. Excess Capital Expenditure make its finance under pressure which result to its high debt volume (as written in the case: “Parks used new rides and attractions to drive attendance rates up. Thus, the parks required regular capital expenditures and access to real estate”) | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | Operating CF | 171.7 | 33.2 | 121.3 | 9.8 | (37.5) | 66.9 | 77.8 | CAPEX | 112.9 | 107.0 | 171.2 | 122.6 | 115.6 | 99.2 | 100.9 |

c. Poor efficiency of assets utilization relative to other company in same industry reflect managerial problem: | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | Total assets | 4674.7 | 3642.2 | 3493.3 | 3187.6 | 2945.3 | 3030.8 | 2907.7 | Operating CF | 171.7 | 33.2 | 121.3 | 9.8 | (37.5) | 66.9 | 77.8 | OCF/Assets | 0.10% | 0.45% | 0.13% | 0.68% | -0.20% | 0.15% | 0.11% |

Operating Cash Flow/Total Assets ratio (Six flags): | 2003 | 2004 | 2005 | 2006 | 2007 |