H Partners and Six Flags Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

H Partners and Six Flags Case Study Analysis

Introduction

‘Six flags’ is one of the largest park-operating firms in Texas formed by Angus Wynne in 1961. It is currently operating 19 parks in Cumulated States, Canada, and Mexico. Six Flags has developed as the world’s most considerable huge location. Six Flags provides the guests with an affluent and reasonable experience to have a pleasurable time with their family and friends. Besides its existence in the business for more than 40 years the company had to inaugurate and trade many of its locations and the company’s increasing debt required intense focus. The company had faced several economic crises, natural disasters, and inefficient management issues that directed the company towards a lower attendance rate and subsiding cash flows.

The company was unlisted in April 2009 by the Incipient York Stock Exchange as the company failed to maintain its cash flows (that decreased by more than $120 million) and pay the preferred shareholders. Six Flags filed for bankruptcy in June 2009. The hedge fund H partners attained Six Flag’s Senior Bonds right after its bankruptcy which was filed at around 60% par value. Subsequently, the company started developing through its bankruptcy Senior Bond’s market value started to reflect the enhanced value. The H Partners considered focusing on the expected opportunities within the Six Flags capital structure or other business investments.

Problem Statement

Six Flags is one of the recognized companies providing services with its amusement parks. The company filed for bankruptcy. Meanwhile, H Partners acquired some Senior Bonds of the company at 60% par value. The company started to grow gradually after the acquisition which increased the market value of Senior Bond. The growth enabled H Partners to reassess its expected opportunities and limitations concerning the bankruptcy plan.

Situational Analysis

Six Flags worth at the Year-End of 2009

The company’s recovery rates and endeavor value implied by the year 2009 on each creditors’ category bidding an exchange offer need to be identified. Therefore, the precedency of capital structure is being realized using Exhibit 7 in the case. The top category of precedence is grounded on SFTP revolver and term loan. SFO notes are included in the second category of precedence. The third category includes SFI (2010, 13, and 14) and convertible loans. The lowest precedence is the preferred PIERS equity and the common equity. The value of the implied endeavor of the exchange offer is taken as $1.7 billion and directed value to the shareholders. Taking a look at the most senior category of the company the overall claim is $1.1 billion (less than enterprise value i.e. $1.7 billion). The recovery rate was 100%.

The second class has a claim of $420 million with a recovery rate of 100% and a (cumulative claim of the first and second class of $1.53 million). The given rates of exchange offer were used and the equity was divided as 85% to SFI Notes, 10% to PIERS, and 5% to common equity. The recovery rates for SFI Notes and PIERS turned out to be 16.6% and 5.5 % respectively. The calculated SFI enterprise value is $144.5 million, PIERS enterprise value is $17 million and the common equity enterprise value is 8.5 million. We have derived the enterprise value by adding the short-term and long-term loans with the market cap and thus subtracted hard cash from it the EV of 2006 is $2.7 billion and in 2007 it is $2.4 billion which is more than the implied value of 2009 (i.e. $1.7 billion).

Effects of Bankruptcy on Valuation

Bankruptcy can have a significant impact on a company's valuation, as it introduces uncertainty and increased risk. In the case of Six Flags, bankruptcy meant that the company's assets, liabilities, and future earnings potential were all subject to negotiation and legal proceedings, making it difficult for investors to accurately assess the company's value.

In the case with Six Flags, the market cap in 2006 and 2007 is also greater than the market cap 0f 2009. The huge difference between 2009 and 2006-7 values was because of the worst economic conditions and the swine grippe virus which had disturbed the whole market. At the end of the year 2009, Six Flag has not had enough potential to pay off its debt of $2.7 billion and the company’s market value is declining significantly. The company is suffering as the equity holders are not willing to invest further in the company.

Hence it could be said that bankruptcy had a negative impact over the capital structure of the company as the company had to restructure its debt and issue new equity that tended to change the company’s equity. Furthermore, the valuation of the company was negatively impacted and it could be seen from the given Exhibit 11, where in the year 2009 the company’s share price was declined to $0.08.which is a significant decline if compared with the share price of previous years. Similarly, market capitalization of the company was also declined significantly as in the year it was $7.6 million...............

H Partners and Six Flags Case Study Analysis