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08 Jul 2010
Approximately $750 million of Securities Affected
New York, July 08, 2010 -- Moody's Investors Service assigns a (P) Ba3 rating to GEO Group,
Inc.'s proposed $750 million senior secured credit
facility. The facility is intended to partially finance the acquisition
of Cornell Companies. All of GEO Group's ratings remain under
review direction uncertain, pending the completion of its merger
with Cornell Companies, Inc. expected to close in the third
On April 19, 2010, the GEO Group announced plans to acquire
Cornell for stock and/or cash at an estimated enterprise value of $685
million including the assumption of approximately $300 million
in Cornell debt. The proposed bank facility includes a new $400
million 5-year revolving credit facility; $150 million
5-year Term Loan A; and $200 million 6-year
Term Loan B. Proceeds from the term loans and draws on the revolver
will be used to satisfy the cash component of the transaction, refinancing
existing GEO bank debt and Cornell's recourse debt upon completion
of the merger.
Effective leverage is expected to increase to 43% upon closing
from 37% as of April 4, 2010 and secured debt will increase
to 32% from 21%. Other concerns center on the successful
integration of the two companies. Cornell's Adult Secure
Division will fold into GEO Group's U.S. Corrections.
Cornell's Adult Community-Based Services and Abraxas Youth
and Family Services are new operating platforms for the GEO Group,
and will fall under the company's GEO Care Division which provides
behavioral health & correctional healthcare services.
Counterbalancing these concerns, the acquisition will add size and
diversity to GEO Group. Operating Revenue is estimated to increase
to approximately $1.5 billion (based on FY2009) from $1.0
billion and the number of beds will increase to approximately 79,000
from 58,000. The Adult Community-Based Services and
Abraxas Youth Family Services expands GEO Group's already diverse
operating platform and client base which includes international operations
in Australia, the U.K. and South Africa.
In the short to intermediate term, Moody's notes the full
benefit of expanded capacity may be muted due to the uncertainty of new
contracts. Severe budgetary pressures on federal, state and
local governments may curtail new contracts. On the other hand,
some expect governments to turn to private correction companies as part
of the solution to budget deficits. In general, state and
federal prisons are operating at or above capacity and governments now
lack the funds to invest capital in new facilities. Beyond this,
private prison companies can run facilities in a more cost efficient manner
as they are not confined by the same higher labor costs requirements (including
pension costs) of governmental entities.
The ratings remain under review pending the shareholder vote and closing
anticipated in the third quarter 2010. Moody's notes that
should the transactions close as expected by GEO Group, the pro-forma
credit metrics for the company will likely weaken, yet the company's
financial profile should remain within its existing rating category.
The following rating was assigned and is under review direction uncertain:
GEO Group, Inc. -- Proposed $750 million senior
secured credit facility at (P) Ba3
The following ratings remain under review direction uncertain:
GEO Group, Inc. -- Ba3 senior secured;
B1 senior unsecured; Ba3 corporate family.
Moody's last rating action with respect to GEO Group, Inc.
was on April 19, 2010 when Moody's placed the ratings under review
The GEO Group, Inc. [NYSE: GEO] is based in Boca
Raton, Florida, USA and is a provider of government-outsourced
services specializing in the management of correctional, detention
and mental health and residential treatment facilities in the United States,
Australia, the United Kingdom, South Africa, and Canada.
As of April 4, 2010, GEO managed approximately 53,000
beds and had an additional 4,000 beds under development.
The principal methodologies used in rating GEO Group, Inc.
were Moody's Rating Methodology for REITs and Other Commercial Property
Firms, published in January 2006, and Rating Methodology for
REITs and Other Commercial Property Firms, published in May 2007,
and available on www.moodys.com in the Rating Methodologies
sub-directory under the Research & Ratings tab. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
Commercial Real Estate Finance
Moody's Investors Service
Clifford Crain III
Commercial Real Estate Finance
Moody's Investors Service
Moody's assigns a (P) Ba3 rating to GEO Group's proposed $750 million credit facility; all ratings remain under review direction uncertain
No Related Data.
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