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CoreCivic backed off $250M term loan, highlighting challenges for prison owners

CoreCivic Inc., one of the largest publicly traded owners of private prisons, abandoned plans to pursue a $250 million term loan amid the ongoing controversy over its involvement in immigrant detention along the U.S. southern border.

One rating agency attributed the reversal to a lack of investor appetite, and the move coincided with moves by several large banks, including Wells Fargo & Co., Bank of America Corp. and JPMorgan Chase & Co., to distance themselves from the prison industry.

CoreCivic said in May that it would refinance part of its revolving credit facility with a "term loan B," a type of leveraged loan in which underwriters secure funding commitments from a wide range of possible debt investors, including collateralized loan obligations, hedge funds, insurance companies, pension funds and other institutions.

Lending commitments were due in mid-June, but the loan was never consummated. CoreCivic did not widely publicize its change of plans and did not respond to a request for comment.

S&P Global Ratings and Fitch Ratings issued ratings of the proposed term loan before its cancellation, and Moody's Investors Service issued a rating of the company's credit facility that took note of the proposed loan. Fitch later withdrew its rating, saying in a statement that the borrower did not immediately expect to complete the deal.

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Both CoreCivic and GEO Group Inc., the other private prison industry leader, are real estate investment trusts that own and operate prisons on behalf of various state and federal agencies, including U.S. Immigration and Customs Enforcement. The companies benefited from the 2016 election of President Donald Trump, who intensified immigrant detainment, but have suffered in the subsequent backlash against Trump's policies.

CoreCivic's failure to secure commitments from the broader pool of term loan B investors "suggests that the weakness in prison REITs' access to capital extends beyond banks to other key capital providers," Fitch analyst Gabriel Foguel said by email, in response to an inquiry from S&P Global Market Intelligence.

Fitch downgraded CoreCivic's debt rating in July, arguing that banks' growing reluctance to deal with the prison industry could hurt the company's ability to raise funds. (The agency does not rate GEO Group.)

A spokesman for the loan's lead arranger, Citizens Bank NA, declined to comment. Additional arrangers for the deal were SunTrust Robinson Humphrey Inc. and PNC Capital Markets LLC. The parent banks of both firms have said in recent weeks that they will stop raising capital for private prison companies in response to pressure from activists, shareholders and elected officials.

According to Leveraged Commentary & Data, an offering of S&P Global Market Intelligence, the CoreCivic loan is one of 15 leveraged loan deals pulled prior to completion so far in 2019, compared to more than 450 successfully completed loans.

The borrower for another of the canceled loans was GEO Group, which sought in April to refinance its revolving credit facility. The company backed away from that plan before successfully extending the maturity of its existing facility until 2024 roughly two months later, LCD said. GEO Group's lead arranger on that transaction, BNP Paribas SA, said in July that it will no longer raise funds for private prison companies.

Observers of both companies say neither CoreCivic nor GEO Group appears to be in imminent financial danger, with operations relatively strong and the companies' credit facilities not due to mature for several years — until 2023 in CoreCivic's case.

GEO Group has said "misleading political activism" affected its banking relationships, but both companies maintain that they will have ample available capital when they need it. CoreCivic's CFO said in a conference appearance June 5 that the company was fielding calls from a growing number of domestic and international banks eager to lend it money. His comments roughly coincided with the period in which the company's advisers were marketing the ultimately unsuccessful term loan.