WILMINGTON, Del. (Reuters) – Six Flags Inc (SIXFQ.OB) put its its chief financial officer on the stand to defend its reorganization plan against attacks by some bondholders, with ownership of the theme park operator at stake.
Jeffrey Speed spent most of Monday describing the events leading to the company’s bankruptcy and the operating cash flow needs, as the company sought to make the case that their plan was the most feasible.
“We’ve been trying to manage a cash or liquidity crisis every year I’ve been at the company,” said Speed, who joined Six Flags from Walt Disney Co (DIS.N) in 2006.
Under cross examination in U.S. Bankruptcy Court in Delaware, Speed was pressed why he did not try to engage potential investors that had shown an interest in the company while it was in bankruptcy.
“We did not say we’re putting the company up for sale,” said Speed of attempts to raise funding for a potential plan of reorganization.
Those interested in the company included private equity group MidOcean Partners, real estate magnate Sam Zell, Providence Equity Partners, Apollo Management [APOLO.UL] and Far East International Holdings of Hong Kong, according to testimony.
He also said that none of the interested parties was willing to value the company at a level above what had been proposed in the company’s plan of reorganization.
The company’s reorganization proposal was crafted by holders of senior bonds who will end up controlling the company under the plan.
Junior bondholders, led by hedge fund Stark Investments, have said that the operator of just under 20 regional parks can borrow more and pay all creditors what they are owed. Their plan would leave them in control of the company.
The junior bondholders, known as the SFI Noteholders, also argued on Monday that the company’s plan cannot be confirmed because they voted to reject it and that it was not negotiated in good faith.
The SFI Noteholders said last month they were in talks with a new management team if they take over the company. By contrast, Speed stands to reap a $750,000 bonus if Six Flags comes out of bankruptcy under the company’s plan.
The trial is scheduled to last two weeks, with potentially dozens of witnesses taking the stand and thousands of documents entered as exhibits with the aim of convincing Judge Christopher Sontchi of the company’s true value and each plan’s viability.
The hearings will lack starpower, as Six Flags’ chairman and Washington Redskins’ owner Dan Snyder will not testify, according to the company’s attorney.
Senior bondholders, known as SFO Noteholders and led by distressed investor Avenue Capital Group, drafted the company’s plan, which will fund the exit from bankruptcy with some $830 million in debt. The SFO Noteholders would also invest $450 million in equity.
SFI Noteholders proposed paying everyone senior of their own debt in full and taking control of the company. SFI Noteholders only secured financing for their plan on Friday, which includes $1.17 billion of debt and $582 million of equity.
While the trial plays out in public, behind-the-scenes talks are likely to continue, although the burden is on the SFI Noteholders to craft an offer to win over Avenue Capital.
Six Flags might seem to be an unlikely target of such an expensive tussle. The company has largely been unprofitable for more than a decade.
However, some of the debt that sunk the company was used to build bigger and better attractions and roller coasters, which now will protect the company from potential competition.
In addition, a sluggish economic recovery has made the regional theme parks an affordable “stay-cation” alternative to long-distance holidays for cash-strapped American families.
The case is In re: Premier International Holdings Inc, U.S. Bankruptcy Court, District of Delaware, No. 09-12019. (Reporting by Tom Hals; Editing by Tim Dobbyn)