Image: Magic Mountain
Craig T. Mathew  /  AP
Six Flags Inc. is considering selling some of its amusement parks, including Magic Mountain and Hurricane Harbor, to ease its debt load.
updated 6/23/2006 6:30:17 PM ET 2006-06-23T22:30:17

Investors in Six Flags Inc. shaved off a quarter of its share value Friday after the company said it may be in trouble with debt and could sell six theme parks, prompting credit rating agencies to issue downgrades.

The chief executive, Mark Shapiro, announced in a conference call after the market closed on Thursday that the company no longer expected to meet its earnings guidance and that revenue and attendance were lower.

Shares fell in after-hours trading by about 20 percent and kept falling when the market reopened. Shares tumbled $1.90, or 25.5 percent, to close at $5.55 Friday on the New York Stock Exchange. Over the past 52 weeks, the stock has ranged from $4.30 to $11.93.

The last time the company’s shares suffered a comparable loss in a single day was July 16, 2004, when the price fell by about 25 percent.

Standard & Poor’s and Moody’s lowered their outlooks for the amusement park operator on Friday.

Shapiro told analysts and investors late Thursday that revenue was down about 1 percent through June 18, attendance fell by 13 percent, and the company may fail to comply with certain bank credit covenants. Shapiro also said the company would explore selling six properties, including one of its flagship locations, the Magic Mountain park near Los Angeles.

Shapiro took over as chief executive in December after Washington Redskins owner Daniel Snyder won a protracted proxy fight to gain control of the company. Snyder made his name building an eponymous direct marketing firm that he reportedly sold for $2 billion. He has a reputation for being difficult as a manager, and since he bought the Redskins in 1999, the team has been through five head coaches.

Shapiro was recruited from ESPN and now faces the task of reforming the company. In recent months, the company has raised its prices for season passes in an effort to lessen the company’s focus on teenagers and attract higher-paying visitors and families. Sales of season passes have fallen, but higher spending per visitor has not offset those losses. Shapiro told analysts that the company planned to spend an additional $15 million on new hires to improve atmosphere in the parks.

Under previous managements, the company acquired a number of smaller, regional theme parks, taking on debt in the process. The proposed sales are a way for Shapiro to “tighten things up,” according to John Robinett, a senior vice president at Economics Research Associates in Los Angeles.

Standard & Poor’s lowered its outlook on Six Flags to negative from stable on Friday. The rating agency cited weak attendance, higher than expected operating costs and a tight “cushion of compliance” with its debt agreements.

“The size and diversity of the company’s regional theme parks only partially mitigates these concerns,” said S&P credit analyst Hal F. Diamond.

Major Market Indices

B-minus ratings
S&P gives Six Flags a corporate credit rating of B-minus, which is six notches below investment grade. The negative outlook was applied because “the company’s turnaround effort appears to be more challenging than Standard & Poor’s had anticipated, requiring more investment and time.” In its report, S&P anticipated the outlook would not change over the next year, unless it saw improvements in profitability, debt and cash flow.

Moody’s downgraded the speculative grade liquidity rating of Six Flags to SGL-4 from SGL-2 based on the risk the company will fail to meet its credit obligations.

Shapiro said in the call with investors on Thursday that Magic Mountain is a sale candidate partly because of its rowdy teenage atmosphere. The property also sits on 250 acres north of Los Angeles and would likely attract real estate developers.

“When Mark Shapiro took over, he promised some bold action, and this is bold,” said Paul Ruben, the North America editor of Park World magazine. “I was surprised by his selection of parks. Magic Mountain in California, for example, is one of their flagship parks. And for that to go on the auction block was shocking.”

“I think it might be a real estate play,” Robinett of Economics Research Associates said. “Why would you sell one of your flagship properties?”

Company to reduce teenage focus
The New York-based company, which owns 29 amusement and water parks, wants to reduce its reliance nationwide on teenage customers who cause security problems and don’t spend much money, Shapiro said. The company, in evaluating which parks could be sold, also examined which ones sit on valuable real estate, he said.

The company also named five other parks it may sell. They are in or near Buffalo, Denver, Seattle, Houston and Concord, Calif.

Ruben said those parks are undervalued but does not see any obvious buyers. He said the properties may be bought by foreign investors.

“With its scorched-earth call last night, and a likely big hit to the stock this a.m. it’s difficult to see much more room to disappoint,” said Bear Stearns analyst Glen Reid in a research note.

Reid said he was optimistic that Six Flags would eventually emerge from its problems. He said in the near term he looked for a more stable second half and progress on the asset sales later in the year.

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