GEO Group downgraded by S&P Global Ratings to CCC on debt exchange risk

GEO Group Inc. was downgraded on Jan. 26 by S&P Global Ratings to CCC, from CCC+, retaining its negative outlook, with the agency saying it believes GEO will have difficulty refinancing $1.8 billion of debt maturing in 2024. Ratings also downgraded GEO's senior secured debt to B-, from B, but affirmed its unsecured notes at CCC.

In May 2021, GEO hired restructuring advisors to help management consider alternatives, given the company's looming debt maturities. Ratings noted that on Jan. 5 the company disclosed in a Form 8-K that since November 2021, restructuring discussions have been ongoing with an ad hoc group of term loan lenders, revolving loan lenders, and certain holders of its 5.125% senior notes of 2023, 5.875% senior notes of 2024 and 6% notes of 2026.

The company's 8-K said that during those discussions, the parties exchanged proposals that contemplated swapping current debt for varying percentages of cash and new debt of combined par face value, the new debt generally having different terms and longer maturities. The filing said that no agreement on a transaction had yet been reached, but GEO anticipated that negotiations would continue.

In its report, Ratings said it believed a transaction among the parties is "likely" ahead of the company's nearest-dated debt maturity in April 2023. Ratings noted that it might consider a transaction to be "distressed" if lenders end up receiving less than their original promise "without adequate offsetting compensation." Ratings added that transaction details leading to a distressed designation could include extending maturities and/or reducing a debt's seniority.

Operationally, Ratings said it expects that over the next year GEO will continue adding to its "significant" cash position of $560.7 million at Sept. 30, 2021, which the company had built up through cost controls, strong volumes, asset sales, and reduced capital expenditures and dividends. GEO's operations and cash balances "support its negotiating leverage with lenders," according to the agency.

Publicly traded GEO specializes in the design, financing, development and operation of secure facilities, processing centers and residential reentry facilities in the U.S., Australia, South Africa and the U.K.