In order to find the endeavor value and recovery rates for each category of creditors implied by the April 2009 attempted exchange offer. we foremost had to find the precedence degrees of the capital construction. We used Exhibit 7 in the Case papers to find the precedence degrees of each category. The top precedence category included the SFTP Revolver and Term Loan; the 2nd precedence category included the SFO Notes; and the 3rd precedence category included the SFI 2010. 2013. 2014. and converible notes; The lowest precedence was the PIERS preffered equity followed by common equity. We so took the implied endeavor value of the exchange offer of $1.7 billion and started administering the value between the debt holders. get downing at the most senior tranche of the capital construction. With the most senior category holding an entire claim of $1.1 Bn ( less than the EV of $1.7 Bn ). their several recovery rate was 100%.
Similarly. the 2nd class’s claim of $420 Mn ( with a cumulative claim including first and 2nd categories of $1.53 Bn ). had a recovery rate of 100%. We worked down the categories until we reached the breakpoint between SFO Notes and the SFI Notes. Everything above this breakpoint would hold a 100% recovery. and so per the inside informations of the exchange offer. we split the equity staying among the SFI Notes. Pier and the Common Stock ( 85%, 10% and 5% severally ). This resulted in a recovery rate of 16.6% for the SFI Notes. and 5.5% for the PIERS. The Enterprise Value for the SFI Notes is $144.5 million. for the PIERS category $17.0 Mn and the common equity is $8.5 Mn. See Exhibit 1 in the Appendix for extra inside informations.
Adding the value of the Six Flag’s Short Term and Long Term debt to its market cap. and so subtracting the hard currency at manus. we are able to detect an Enterprise Value of $2.7 Bn in 2006 and $2.4 Bn in 2007. This is higher than the 2009 implied value of $1.7 Bn. Similarly. the market cap of Six flags is much higher in 2006 and 2007 than 2009. Part of the ground that the value of Six Flags decreased from 2006 and 2007 to that of 2009 was due to the planetary fiscal crisis. which resulted in a diminution in client visits and spend. In add-on to this. the swine grippe virus eruption compounded with troubles in accessing planetary capital markets. made it really hard for Six Flags to do payments for its $2.7 Bn of debt. With this is head. the market anticipated that bankruptcy might be at hand and hence Six Flag’s stock monetary value declined significantly. Furthermore. with capital markets in hurt. the company suffered from debt overhang as equityholders likely were non willing to shoot more equity into the company.
In order to find the endeavor value and recovery rates for each category of creditors implied by direction program and the SFO program. we foremost had to find the precedence degrees of the capital construction. We used Exhibit 7 and 10 in the Case paperss to find the precedence degrees of each category. We used the information provided in Exhibit 10 in the Case paperss to find the appropriate claim values for each category of capital. Management program – For the SFTP value. we calculated the claim value as the Enterprise Value minus the $600 Mn term loan. multiplied by 92%. and so added the $600 Mn value. making a entire value of $1.198 Mn. For SFO’s claim value. we deducted $600 Mn from the EV and multiplied that by 7%. making a value of $45.5 Mn. Similarly for the SFI notes. we multiplied by 1% and reached a value of $6.5 Mn. Based on these values. we derived the recovery rates for each category. The breakpoint was between the SFTP category and SFO category. where the recovery rate for SFO was merely 10.8%.
Per the instance the SFI category received 1% of the equity ensuing in a recovery rate of 0.7%. The preferable and common stockholders received nil under this program. Extra inside informations can be found in Exhibit 2 in the Appendix. SFO recovery program –the implied endeavor value under this program was $1.47 Bn. For the SFTP value. the instance stated that they were repaid in full. so their recovery rate is 100% and the endeavor value for that category was $1.147 Bn ( Consisting of $680 Mn term loan. $450 Mn rights offering. and $17 Mn drawdown on six-gun ). Given that the $450 Mn rights offering constituted 69.8% of implied equity value. we obtained an equity value of $644.7 for the company. The SFO notes would have 22. 9 % of that which is tantamount to $147.6 Mn endeavor value and a 35.2% recovery rate. while the SFI notes would have 7.3% of that which is tantamount to $47. 1 Mn endeavor value and a 5.4% recovery rate. See the Appendix for inside informations on the SFO recovery program premises and consequences.
To develop a rating of the company. we did two attacks: DCF and Multiples. The first was a DCF analysis with a WACC price reduction rate of 11.06%. with an estimated Enterprise Value ( including NOL’s ) of about US $2.8 Bn. We calculated WACC by utilizing an Asset Beta of 1.06 ( beginning: Yokel! Finance for Entertainment Industry ) and deducing the Levered Beta utilizing a debt degree of $830 Mn and equity value of $644 Mn. Based on this. we calculated Re. Rd ( derived from involvement expense/level of debt ). and WACC. Then. we assumed a 3% growing rate to acquire a Terminal Value of $3.010. To cipher FCF. we deducted CapEx and Cash Taxes from EBITDA ( besides assumed that working capital alterations either equal to 0 or reflected in hard currency operating disbursals ). Finally we added the $ 1. 3 Bn of NOLs multiplied by fringy revenue enhancement rate of 35% to the endeavor value to obtain $2.8 Bn For multiples computation. we calculated the 2009 EV/Revenue multiple of Cedar Fair. which was 2.45x and multiplied it by the 2009 projected grosss of Six Flags and added the NOLs value.
Given all the four possible options for H Partners ( as outlined at the terminal of the instance ) . we would urge to take part in the SFO rights offering. Such offering provides the most upside to H Partners. given that they would have an extra 70 % of the company; they would purchase these rights with an implied endeavor and equity value of the company of $1.4 Bn and $0.64 Bn severally. merely to watch them appreciate significantly to their intrisinc value that we calculated of $2.8 Bn and $2.04. Thus their equity investing would about treble in value. Option 3. traveling down the ladder towards a more junior class. would set H Partners in a much greater hazard because presently harmonizing to the program they would acquire the least pro forma equity and even further they can acquire diluted by a direction inducement program. Furthermore. Option 4 to take part after Bankruptcy would likely merely offer H Partners much less possible given that major hazards have been mitigated and Six Flags has gone through the reorganisation procedure and managed to emerge from Chapter 11. We recommend H Partners to take part in the SFO offering.
