Why Businesses go Bankrupt: Six Flags

At the one year anniversary of the bankruptcy of Lehman Brothers, we are naturally seeing a lot of reprise coverage as this was the largest business failure in U.S. history and by many accounts, made the U.S. financial crisis much worse.   With all of the focus on Lehman Brothers, many other recent bankruptcies have gone under reported by the financial press, which gives us a chance to turn our attention to these other companies, and ask, how did they go wrong?

Washington Redskins owner Dan Snyder invested a reported $34 million in Six Flags, the amusement park company, and took management control in 2005, bringing in a new CEO, Mark Shapiro.  However, despite closing  ten under-performing parks, and cutting costs, he ultimately was not able to overcome the heavy debt load he inherited from the prior management team.  The recession and lower park visitation pushed Six Flags into Chapter 11 in June 2009.  The equity holders will be wiped out, as the creditors, including Citigroup and Barclays take control.

CEO Mark Shapiro, in an attempt to reassure would-be customers, described the bankruptcy as “strictly a financial restructuring of our debt.”   Trip to Six Flags anyone?

Lesson learned: Be cautious about investing in a debt-laden company, in a capital intense industry; there may not be enough capital to go around.