Bankrupt Six Flags Inc has submitted a new reorganization plan that represents a victory for hedge fund Avenue Capital Management, which fought an initial proposal that gave little to bondholders.
The world's largest regional theme park operator filed for bankruptcy in the middle of the year with a plan that transferred almost all of its stock to senior lenders, including JPMorgan Chase & Co, in return for cutting its debt.
The plan sparked immediate opposition, in part because it was far more favorable to bank lenders than what the company had proposed just prior to bankruptcy.
The company said it realized it had to modify its plan of reorganization after discussions with creditors, and as financial markets improved.
The stabilization and loosening of the credit markets has created financing opportunities that did not exist at the times these cases were filed and the original plan was formulated, the company said in a court filing.
The new plan, which was filed with the court on Saturday, is based on proposals by the Avenue Capital group of bondholders and includes selling $450 million in new stock to increase the money available for creditors.
Led by Chairman Marc Lasry, Avenue Capital invests in distressed companies such World Color Press Inc, which filed for bankruptcy as Quebecor World Inc, and MagnaChip Semiconductor, which recently emerged from Chapter 11.
The new plan does not change Six Flags senior management, which is headed by Mark Shapiro, a former ESPN executive. It also leaves in place some of the management bonuses Avenue Capital criticized in the first plan.
Bondholders are the biggest winners of the changes.
Holders of one class of unsecured bonds with claims of $420 million now stand to get up to 47.1 percent of the company under the new plan. Six Flags originally proposed giving them 7 percent.
Another class of unsecured bondholders with claims of $1.3 billion now stand to get as much as 4.8 percent of the company, compared to the original plan that offered 1 percent.
The plan may increase the recovery for the junior or holdco noteholders, but falls short of what might have been expected, judging by trading levels for the debt, according to Shawn Abboud, an executive director of trading at APS Financial Corp in Austin, Texas.
I fully expect the holdco bondholders to fight this. This doesn't mean it will be an easy fight, said Abboud.
While the company said the plan had broad support, it was not negotiated with the official committee of creditors and will likely face challenges.
While we're reviewing the plan, we haven't had the opportunity to speak with everyone on the committee to get their sense of what the next step should be, said Steven Levine of Brown Rudnick, which is representing the committee.
Holders of preferred equity known as PIERS were also lining up against the plan.
We think any plan that doesn't provide some significant recovery for PIERS and some recovery for common shareholders is delusional and will be dead on arrival before the judge, said Lance Laifer, the chief executive of Resilient Capital Management.
Resilient Capital Management has led a fight for its own plan that focused on raising capital through convertible debt and cutting expenses to provide a recovery for all creditors and some equity holders.
The company has also attracted the attention of former managers, who in August offered to run the company for a $1 salary and said they could increase its value.
The case is In re Premier International Holdings Inc. and Six Flags Inc., U.S. Bankruptcy Court, District of Delaware, No. 09-12019.
(Editing by Maralikumar Anantharaman, Dave Zimmerman)