Fitch Ratings downgraded its ratings on private prison operator CoreCivic Inc., in part because a string of banks have distanced themselves from prison companies.
The rating agency lowered its long-term issuer default rating for the company to BB from BB+, and revised its ratings outlook to negative from stable, citing weak access to capital. Three of the lead lenders in CoreCivic's $1.1 billion secured credit facility — JPMorgan Chase & Co., Bank of America Corp. and SunTrust Banks Inc. — have said in recent months that they plan to stop lending and providing financial services to the private prison industry.
Wells Fargo & Co. and BNP Paribas SA, which have lent to CoreCivic's prison-industry peer, GEO Group Inc., have also said they will stop lending to prison operators.
Fitch said its negative outlook for CoreCivic is related to uncertainty over the possibility that additional banks could sever ties with the sector. Limited access to bank lending is "uncharacteristic" of real estate investment trusts in the BB rating category, Fitch said. Its ratings assume that the company will replace the exiting lenders with others — primarily regional and foreign banks and nonbank financial institutions.
Fitch noted that environmental, social and governance concerns regarding private prison operators have recently grown beyond the largest U.S. money centers to include regional and European banks. The agency plans to assess CoreCivic's ability to replace existing bank syndicate members and access new capital during a one- to two-year horizon.
CoreCivic's CFO said in a June conference appearance that banks remain eager to lend to the company.
Because prison real estate generally lacks secured property mortgage access, a key liquidity source for equity REITs, prison companies rely more on access to bank and debt capital markets.
Besides the issuer default rating, Fitch downgraded CoreCivic's senior unsecured debt rating to BB from BB+, and its senior secured debt rating to BB+ from BBB-.
The agency said it expects the U.S. federal correctional system to continue to rely on private correctional facilities, given its increased focus on illegal immigration, which has led to growth in the number of detainees.