From Pine View Farm

Forget the Coaster. Ride the Leverage. 0


Amusement-park operator Six Flags Inc. filed for bankruptcy protection on Saturday and is seeking an expedited approval from the court of its pre-negotiated reorganization plan.

Bloomberg has a more longer story here. From the Bloomberg story:

Six Flags shares have fallen 86 percent in the past 12 months as investors have grown skeptical about the company’s ability to refinance preferred income equity redeemable shares, or PIERS, before their August redemption date. On Aug. 15, $287.5 million in preferred stock matures and $131 million of 8.875 percent senior notes come due next year.

The issue doesn’t seem to be profitability in the conventional sense. I read elsewhere (can’t remember where–yesterday was a long time ago) that day-to-day operations have been profitable for the last couple of years. Rather, it seems to be “leverage”–debt.

Despite the magic of double-entry bookkeeping (not the same as two sets of books) and Wall Street’s double-talk, the past year has proven that more debt does not magically mean more wealth (or, to use Wall Street’s double-talk, “wealth-creation”) unless the meny obtained through debt is actually used to create something useful, like a bridge or a school or a factory or such.

I haven’t dug it out yet and may never do so, but I got a dollar to a doughnut that a lot of the debt didn’t have anything to do with building new theme parks and improving the business, but just with “taking the cash out.”

I’m betting that cash didn’t go anywhere useful.


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