The encyclopedia · Finance & Accounting · Financial decision · 2006–2009
Six Flags filed for Chapter 11 to shed $1.8 billion in debt
The theme-park chain filed for Chapter 11 in 2009, weighed down by debt from a leveraged buyout and falling attendance.
Six Flags · 2009-06-13
What happened
Six Flags operated twenty theme parks across North America. In 2006, Red Zone Capital, an investment firm controlled by Washington Redskins owner Daniel Snyder, took control of the company and loaded it with debt to finance the buyout and new attractions.
By 2009 the company could not service the burden. Attendance and revenue had fallen during the recession, while interest payments consumed cash. On 13 June 2009, Six Flags filed for Chapter 11 bankruptcy protection with a plan to eliminate about $1.8 billion of debt.
The company kept its parks open and said it would not sell properties or cut jobs. It emerged from bankruptcy later in 2009 with lenders owning most of the equity, wiping out the previous shareholders.
Why it happened
- The 2006 buyout was financed with debt that assumed rising attendance and strong cash flow; the 2008-2009 recession made those assumptions wrong.
- Six Flags had spent heavily on new rides and park upgrades, but the investments did not lift revenue enough to cover interest costs.
- The company was paying for past acquisitions rather than generating free cash to reinvest in operations.
- Theme-park attendance is cyclical; a leveraged capital structure turned a downturn into a balance-sheet crisis.
The lesson
A leisure business with volatile revenue cannot carry a fixed debt load built for growth. Six Flags' rides stayed open; its capital structure broke.
Aftermath
Six Flags exited Chapter 11 with new ownership and a cleaner balance sheet. The brand survived and eventually returned to growth, but the episode erased the pre-bankruptcy equity and became a textbook case of a leveraged buyout undone by a recession.
Sources
- NPR — Six Flags Seeks Chapter 11 Bankruptcy Protection
- The Hollywood Reporter — Six Flags won't sell parks, cut workers
- University of Tennessee Legal Scholarship — Chapter 11 with a Happy Ending: The Six Flags Bankruptcy
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