Every company saddled in debt and dependent on consumer discretionary spending is in trouble. Amusement park operators are certainly no exception.

With the above in mind it should be no surprise Six Flags Files for Chapter 11.

Six Flags Inc., one of the largest regional amusement-park companies, filed for bankruptcy protection Saturday.

The theme-park company, shouldering more than $2 billion in debt, had been negotiating with lenders, selling parks and laying off staff in a race to restructure outside of bankruptcy court. But it couldn’t outrun the deteriorating economy and a looming $288 million payment due preferred shareholders this August, along with $31 million in unpaid dividends.

Six Flags hopes to exit bankruptcy quickly through a prearranged reorganization plan. It struck a deal with senior secured lenders that would allow it convert $1.8 billion in debt to equity.

The plan was backed by J.P. Morgan Chase & Co., the agent for the facility, and a steering committee of lenders, according to court documents. The support represents half the facility’s obligations, the company said. The plan would also wipe out more than $300 million in preferred stock obligations.

Losing out on Six Flags’ financial rollercoaster: Microsoft Corp. founder Bill Gates, whose Cascade Investment LLC owned about 10.2 million shares, or an 11% stake. Other big equity holders include Dwight Schar, a Six Flags board member and part-owner of the Redskins alongside Mr. Snyder with a 5% stake; Citigroup Inc. with 9%; Barclays PLC with 6.7%; and hedge fund Renaissance Technologies LLC with 5.5%.

Investing in debt ridden companies with poor fundamentals is simply not a good long term idea right now even though in the the rally from the March low has seen companies with the poorest fundamentals lead the charge. Such nonsense will not last.

Mike “Mish” Shedlock
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