Six Flags CEO optimistic about 2009 solution to company's debt problems
Published: March 23, 2009 at 11:54 AM
In a notice filed with the U.S. Securities and Exchange Commission two weeks ago, Six Flags painted a grim picture of its finances. Burdened with debt taken on by past owners' expansion spree, Six Flags is facing bankruptcy if it cannot make a deal with its creditors, to either forgive or postpone payment on its debt.
I asked Shapiro, given the problems companies around the world are having refinancing debt due to the Great Recession, what cuts Six Flags might have to look at making in 2009 to conserve cash to cover its debt obligations.
"None," he swiftly replied.
"The thing you have to remember and that you already know, Robert, is that Six Flags has $200 million in cash on hand," Shapiro said. "So no matter what happens this year, we will be able to pay our bills, our vendors and our employees."
"This is a back office problem," he continued. "The parks themselves are stronger than ever; we're making money, attraction visitors and posting higher guest satisfaction ratings than ever before."
"What people need to know is that when they come to visit a Six Flags park [this year], the only changes that they will see are continued improvement."
I asked Shapiro how Six Flags was planning to respond to Disney's recent aggressive marketing efforts. Traditionally, Six Flags has positioned itself in tough times as the "affordable" alternative to a Disney World vacation. Does Six Flags have room to respond when Disney's repositioning itself a less expensive alternative?
"We're not in competition with Disney," Shapiro replied. "Disney requires a plane trip, an extended hotel stay, and," he added with a laugh, "an extensive outlay in merchandise purchases."
Shapiro contrasted a $49 annual pass to Six Flags Over Georgia, with its unlimited admission to all Six Flags parks, additional five free tickets for friends, in-park discounts and end-of-season Season Passholder Night to Disney's one-day, one-park admission price of $75.
"Six Flags is a drive, not an airplane flight. It's a full day of entertainment, but not something that's ever going to cost as much as a trip to Disney," he added.
Of course, cheap tickets won't bring in visitors to parks that don't have an attraction line-up of fresh rides and shows. I asked Shapiro, given the global credit crisis and the company's debt burden, what position it was in to be able to add new family attractions in 2010 and beyond.
Shapiro replied that Six Flags has been spending $100 million a year on new capital, including rides, shows and facilities. And that the company planned to increase its capital spending an additional 10 percent in 2010. Shapiro said he would like the company to increase spending beyond that for the company's 50th anniversary in 2011.
"Look at what we are doing at Six Flags Over Texas with the Texas Giant," he said. "That's a great ride, but it needs some love. So we're spending $10 million to redo it, and we're closing it down for a year in 2010 to make sure we can do it right."
"If the park was losing money, you wouldn't do that. You'd just shut the ride down."
On that note, I asked Shapiro about the pace of Six Flags' effort to clean up and improve the theming and customer service within its parks. I noted that several Theme Park Insider readers had complimented improvements at parks such as Magic Mountain, but others reported they were still waiting to see improvement at their local park. I specifically mentioned St. Louis, following one TPI reader's request to single out that park.
"Yes, we still have a long way to go," Shapiro conceded. "And we will so long as I am in charge of this company. We'll never get to that point of perfection."
"But given the destruction in this company over the 10 years before we came on board, there was a lot of work to be done. You can't expect to finish everything in the two seasons that we've be here."
"Look, we love coasters. Thrills is our middle name. But we recognize now that coasters come in many shapes and sizes, and that we can build rides that appeal to the whole family. I am happy with what we've done. You're seeing new family rides, new paint, cleaner facilities and better customer service throughout our parks."
Shapiro acknowledged that the pace of improvements is never constant among all parks, but noted across-the-board improvements in customer satisfaction, even in St. Louis, according to Six Flags' in-park surveys. With the economic downturn filling applicant pools, Shapiro said that Six Flags is looking forward to being able to choose from even better applicants when hiring this year.
I asked Shapiro what his message would be to theme park fans who don't visit, or don't like, Six Flags.
"This is a different company now," he responded. "Look, I understand why people turned away from Six Flags in the past. Heck, I was one of those consumers myself. But I think who do give us a chance are seeing the value, the customer service and the overall great experience that we now provide."
So what's his message to investors?
"I guess that it is 'thank you'," Shapiro replied. "I appreciate the patience that our investors have had in us as we've tried to turn this around."
I've compared what Six Flags' corporate office is trying to do now with its creditors to a "negotiated bankruptcy." Bankruptcy does not mean that a company goes out of business and ceases operations. It means that a court supervises the reorganizing of its assets and debts. It tells creditors how much of their money they can get back and tells the company what it can continue to spend. Six Flags is attempting to negotiate that kind of deal with its creditors itself, without having to go to the court.
I asked Shapiro to give me odds on whether Six Flags ultimately would have to go to court in a formal bankruptcy. He wouldn't do it, but did tell me that this renegotiation with creditors "would be a 2009 event."
"You won't hear this complaining or reporting about debt in 2010," he said. "These parks are not going away. We will restructure this debt so that Six Flags can continue for another 50 years."