|Shares Out. (in M):||118||P/E||18.6||17.3|
|Market Cap (in $M):||3,983||P/FCF||0||0|
|Net Debt (in $M):||1,352||EBIT||0||0|
|Borrow Cost:||General Collateral|
Corrections Corporation of America (“CXW”) is the largest provider of prison detention and corrections services to governmental agencies in the United States. The Company owns correctional and detention facilities and is organised as a REIT.
(1) Prison population is falling (fiscal & policy reasons driving this) – prison population peaked in 2009 & has been falling since
(2) Private Prison Operators are the ‘swing capacity’ in the system – private prison operators captured a disproportionate share of the growth in inmate populations (up to 2009). As populations fall it’s easier to cancel contracts with private operators vs. closing government owned facilities (government employee redundancies, union issues, etc.)
(3) You can see this dynamic ‘in the numbers’. For CXW since 2009:
(4) Contracts are typically short duration – a very large percentage of contracts expire over the next 2-3 years. Historically renewal rates have been high (as populations grew & private populations grew disproportionately). This has changed recently. If the structural decline thesis is correct the short duration contracts are the mechanism through which it get transmitted (& potentially quickly). Also note counterparties have the right to cancel contracts unilaterally before expiry in certain circumstances (e.g. failure to secure sufficient budget appropriations);
(5) This is a largely fixed cost business – minimum staffing & other fixed costs mean the operating leverage from lost revenue (declining utilization) is significant. There is financial leverage in addition to the operating leverage
(6) There is no alternative use for the real estate – For example CXW has had facilities idle since 2008. They just sit there empty. Any ‘real estate value underpinning the downside’ thesis seems unlikely;
(7) Dividends exceed free cash flow – e.g. since REIT conversion CXW has consistently paid higher dividends than actual FCF (FFO & AFFO reported by the company are inflated). This has gotten progressively worse as operations have deteriorated
(8) CXW has given counterparties a number of options to purchase facilities at or below book value – CXW currently trades at ~2.8x P/BV. ~20% of BV is represented by facilities that either (i) automatically revert to counterparties at the end of the lease (in 2017); or (ii) where counter-parties have the option to acquire the facility at or below book value; or (iii) are currently idle;
MORE DETAIL ON EACH OF THE THESIS LIMBS
(1) Prison population is falling
(2) Private Prison Operators are the ‘swing capacity’ in the system
'Managed Only’ Facilities:
|Number of Facilities (#)||21||21||21||20||16||12||11||11|
|Average available beds (#)||25,101||24,285||26,390||25,324||21,306||16,763||15,048||13,898|
|Average compensated population (#)||24,238||23,287||25,269||24,340||20,575||15,944||14,104||12,980|
|Average compensated occupancy (%)||96.6%||95.9%||95.8%||96.1%||96.6%||95.1%||93.7%||93.4%|
Owned & operated Facilities:
|Number of Facilities (#)||44||45||46||47||49||49||60||60|
|Average available beds (#)||61,051||62,518||63,797||66,538||67,588||66,179||65,073||71,296|
|Average compensated population (#)||53,893||55,033||55,746||56,722||55,123||53,292||52,007||51,004|
|Average compensated occupancy (%)||88.3%||88.0%||87.4%||85.2%||81.6%||81.0%||79.9%||71.5%|
|Shelby Training Center||Aug-08||200||Tennessee Department of Children’s Services moved operations under its control|
|Queensgate Correctional Facility*||Dec-08||850||Hamilton County, Ohio terminted the lease due to funding issues|
|Prairie Correctional Facility||Feb-10||1,600||Minnesota and Washington had excess capacity and moved prisoners in-state|
|Huerfano County Correctional Center||Mar-10||752||Arizona proposed budgets to phase out the utilization of out-of-state beds (moving in-state)|
|Diamondback Correctional Facility||May-10||2,160||Arizona proposed budgets to phase out the utilization of out-of-state beds (moving in-state)|
|Otter Creek Correctional Center||Jun-12||656||Kentucky moved prisoners to an in-state facility|
|MineralWells Pre-Parole Transfer Facility*||Aug-13||2,103||Texas did not renew due to a legislative budget reduction|
|Marion Adjustment Center||Sep-13||826||Kentucky decided not to seek to renew contract|
|Lee Adjustment Center||Jun-15||816||Vermont decided not to seek to renew contract|
|Leo Chesney Correctional Center||Sep-15||240||Leased to GEO Group. Contract not renewed|
|North Fork||Dec-15||2,400||Out-of State facility for California. Re-let from July 2016|
* No longer included on CXW's list of 'idled' facilities as a result of impairement that was completed in Q1'15
(4) Contracts are typically short duration
(5) This is a largely fixed cost business
(6) There is no alternative use for the real estate
(7) Dividends exceed free cash flow
|12 Mths||12 Mths||12 Mths||3 Mths||Total Since REIT|
|Operating Cash Flow||$369.5||$423.6||$399.8||$120.3||$1,313.2|
|Normalized Operating Cash Flow||$327.4||$352.9||$399.7||$94.1||$1,174.1|
|Investing Cash Flow exc. development & expansion capex||($61.3)||($111.1)||($86.0)||($4.6)||($263.1)|
|Development capex: Otay Mesa Detention Center#||($3.1)||($69.7)||($87.3)||–||($160.1)|
|Normalized Free Cash Flow b/f expansion capex||$263.0||$172.1||$226.3||$89.4||$750.9|
|Other development & expansion capex||($24.9)||($16.1)||($77.6)||($7.8)||($126.3)|
|Normalized Free Cash Flow||$201.9||$156.1||($9.6)||$79.9||$428.2|
|Dividend Paid / Normalized FCF b/f expansion capex||113.8%||136.0%||110.8%||72.8%||113.1%|
|Dividend Paid / Normalized FCF||148.3%||150.0%||n/m||81.5%||198.3%|
# This expenditure is best thought of as maintenance capex. Ownership of the San Diego Correctional Facility reverted to the County upon expiry of the ground lease in December 2015. The Otay Mesa Detention Center is being constructed to replace the San Diego Correctional Facility and retain those prisoners (i.e. it's not an expansion). Without this expenditure the cash flows from those prisoners would have disappeared. CXW had not provisioned for this expenditure in its accounts and instead ran the expenditure through the investing cash flow line as 'expansion' capex.
|12 Mths||12 Mths||12 Mths||3 Mths||Total Since REIT|
|Depreciation of real estate assets||$81.3||$85.6||$90.2||$23.3||$280.4|
|Funds From Operations (FFO)||$294.7||$310.5||$317.3||$70.8||$993.4|
|Stock based compensation||$12.9||$14.0||$15.4||$3.8||$46.1|
|Amortization of debt costs & non-cash interest||$3.5||$3.0||$2.9||$0.8||$10.2|
|Adjusted Funds From Operations (AFFO)||$290.2||$302.1||$309.0||$72.0||$973.3|
|Capex Adjusted AFFO^||$229.9||$242.0||$245.4||$52.1||$768.5|
|Investing Cash Flow exc. development & expansion capex||($61.3)||($111.1)||($86.0)||($4.6)||($263.1)|
|Maintenance Capex / Depreciation of real estate assets||25.8%||29.8%||29.5%||14.4%||27.3%|
|Maintenance Capex / Investing Cash Flow exc. D&E capex||34.3%||22.9%||30.9%||72.2%||29.0%|
|Dividends Paid / AFFO||103.2%||77.5%||81.1%||90.4%||87.3%|
|Dividends / Adjusted AFFO||130.3%||96.7%||102.1%||125.2%||110.5%|
# Impairment of real estate assets, extraordinary items, goodwill impairments, tax benefit from reversal of deferred tax
^ Represents AFFO + maintenance capex - depreciation of real estate assets
(8) CXW has given counterparties a number of options to purchase facilities at or below book value
|Entry||06/20/2016 01:04 PM|
Thanks. Have looked at this and also agree with idea. Surprised how well it's held up given headline risk and deteriorating fundamentals. Is there any catalyst you see that changes the perception? Also do you have an opinion on immigration reform, or lack thereof, being a growth driver?
What do you think it's worth, and how do you view being short a decent dividend payer relative to the timing of thesis playing out?
|Subject||Re: What do you think is fair value for the equity? (EOM)|
|Entry||06/22/2016 05:14 AM|
The market prices the stock on a dividend yield. Dividend cut will be the driver that takes the stocks lower (think energy MLPs as a case study). The company is banking on H2 growth to justify the current dividend (on their flawed AFFO metric - per above) and is also aggressively making acquisitions to obfuscate organic shrinking. This is resulting in higher leverage.
If the structural decline thesis is correct the dividend will look increasingly unsustainable over the next 12-24 months. I see 30-50% downside over a 2 year horizon.
|Subject||Mother Jones: My four months as a private prison guard|
|Entry||06/24/2016 04:36 PM|
Certainly doesn't cast CXW in a good light...
|Entry||06/29/2016 08:35 AM|
I think both are shorts for similar reasons. Be aware GEO has a lot of financial leverage which will magnify moves.
|Entry||06/29/2016 08:46 AM|
Thanks. My thoughts on each:
1) I understand your argument but I would highlight the bigger trend which is going the other way (and is already coming through the numbers). I'd also re-highlight the terms of the Oklahoma lease (which don't suggest a strong market)
2) This is the argument the industry makes. There are others that make the opposite argument. FWIW: (i) I don't think private operators have a lower cost of capital than their customers & I don't think they run facilities that much leaner (you are limited on what you can do on that front); but (ii) I have sympathy with the view that this is a way of 'capitalizing' expenditure and pushing it into the future through annual (rather than upfront) payments. The politics of 'make it someone else's problem' (in the future) can be powerful. Having said all of that the data tells us penetration rates are not going up (as incarceration rates have been falling) vs the opposit when they were rising
3) I agree with this. Trump is good for prison stock prices. What the reality ends up looking like is not as certain (will rhetoric match reality?) but it's pretty clear in my mind that the initial reaction will be for prices to rise and perhaps significantly. Having said that, Hillary is prbably bad for provate prisons. Her policies in this regard are not private prison friendly (case study: Hillary comments late last year & stock price performances on the back of that)
|Subject||Future of Family Detention?|
|Entry||07/11/2016 10:44 AM|
Was curious to get your take on the decision from the 9th Circuit Court of Appeals last week (Flores v US gov’t; No. 15-56434), which ruled that ICE is not permitted to detain accompanied minors? Doesn’t this obviate the intended purpose of CXW’s South Texas “Family Residential” Center? Any sense of how much cash flow could be at risk? My rough math was in the $80m zip code and thus it seemed potentially quite problematic if they have to permanently change the use/scope of the facility. Interested to get your thoughts.
|Subject||Re: Future of Family Detention?|
|Entry||07/14/2016 07:09 AM|
The company doesn't disclose profitability of this contract but I think your $80m is about right. The per-diem in these facilities is significantly higher than average (>$300/man/day vs. <$75/day for the rest of the owned segment exc. this facility). LTM revenue at the STFRC was ~$280m & the company has said that margins are in-line with the rest of the owned business. These facilities were constructed specifically to process families. If children cannot be detained then it's a very expensive solution to process adults only. So it seems likely that either the facilities get shut down or rates get renegotiated (down).
Two caveats: (1) the district court decision was more favourable than the appeal. The original decision also provided for the realease of parents. The appeal overturned that bit; (2) there are still further appeals available to ICE (full bench of the 9th circuit & supreme court).
|Subject||Re: Re: Future of Family Detention?|
|Entry||08/04/2016 03:24 PM|
Any updated thoughts on South Texas? I was a bit surprised to see how quickly the government is moving to recut the deal w/ CXW for the South Texas facility. Seems they want to really narrow the scope of the facility and chip price on the contract regardless of the appeal strategy. Maybe they just feel that detaining children is the wrong thing to do and they don't want to continue to fight it. Either way it seems like there is a lot of cash flow at risk.
|Subject||wow...this looks like the coup de grace|
|Entry||08/08/2016 01:08 PM|
|Subject||excerpts from the "House Appropriations Subcommittee on Homeland Security Hearing"|
|Entry||08/09/2016 10:23 AM|
The hearing was on 3/17/16. Saldana is the Director of ICE. Most relevant parts below. Full piece attached. Graphs of apprehensions below hearing text.
The F.Y. '17 budget proposes funding for 960 family detention beds, which is a significant reduction from the 2,760 family beds funded for the current year. And I saw that last week you published a request for information for facilities and services provided in an innovative manner and which do not resemble traditional correct practices.
What are ICE's plans for consolidating its family detention facilities? And depending on what you get back from the RFI, is it possible that ICE will stop using Karnes and Dilley as -- for families in F.Y. '17?
Well, we're pretty much there on the decision on Karnes. We are probably going to convert that into -- our plans are to convert that into an adult male -- perhaps with children -- facility, not family facility, as it now with -- with largely women.
Dilley will continue to exist. We will continue working there.
And although with respect to Berks, the jury is still out. Our license continues there, but the jury is still out as to whether we will be able to win that challenge to -- that's being made right now with respect to our license at Berks.
So this is such a -- an answer that is determined by so many different factors, not the least of which is what's going to be -- what's happening on the border tomorrow or the month after. I know we - - we all recognize the fact that there's a -- there's a season for migration and then there is times when it's a little slower, but that's currently our -- our plan.
Good to see you today.
I have some questions for you regarding the family detention beds.
The cost of beds for family units was $342.73 in fiscal '16. Yet the budget requested a drop in the average cost to $161.36. In addition, the request projects a decrease in the number of beds by 1,800 beds.
While I applaud the effort to cut costs in this current fiscal climate, I am concerned as to whether this estimate is achievable. I have three questions.
First, why does the request drop the number of beds so dramatically?
As I tried to say earlier and I may not have been clear enough, this -- this was our number back at a time when actually our -- our -- the actions we had taken in enforcement were working, the government of Mexico was helping us with respect to stopping people at our southern border. This were looking fairly steady and even declining, so we based that number on that. That's -- that's why we did that.
But again, I -- I am all -- I am going to be all over this. I will be looking at that very, very frequently.
OK. So then you would agree with me the situation has changed to make that number not feasible?
It -- it has changed, sir, and obviously that's -- that's part of what you're going to be doing with respect to looking at that request, I'm sure.
Did you consult with industry in developing the cost estimate? If not, how did you develop it and
how confident are you that the bed cost can -- can be reduced so significantly?
Well, we have -- we have quite a few people who are experts who have been doing this for 20 and
30 years. I cannot answer your question as to whether there was a specific private consultant we
used. We certainly use private sources for consultation. In the end the decision is ours.
But let me just point out to you, you may remember that when we had that tremendous influx in
2014 we had to stand up Dilley and turn that on a dime, and as a result we paid dearly for those
demands that we made to get the housing in shape, get it available. And we have just released that
request for information with respect to trying to get facts that'll help us decide how we're going to
save this money.
But we really do anticipate, since we had a lot of front-end costs in the Dilley stand-up, that we
will be saving that money and -- and target it -- this number for you.
|Subject||Re: excerpts from the "House Appropriations Subcommittee on Homeland Security Hearing"|
|Entry||08/09/2016 01:56 PM|
Thanks for sharing. I'm scratching my head to think how (or why) ICE would pay more than this new budget amount. In the event that CXW balked at the revised terms, do you have any sense of which ICE assets could be used as processing facilities as an alternative? Presumably they could just give them notice of cancellation with the idea to use Karnes as a stop-gap and/or in-house federal ICE beds. Not ideal, but probably enough of a credible option for ICE to present revised terms on a "take-it-or-leave" basis.
|Subject||More bad news for CXW|
|Entry||08/09/2016 05:24 PM|
value_31, good call here, did bunch of work after your post. Think best part is that as you pointed out, the core business has been in decline with inmate population / occupancy down materially and the only way they plugged the earnings hole was with the quick to sign the well-above-market South Texas contract which is 20%+ of EBITDA but now at risk.
Couple more thoughts to add:
1. South TX situation pretty well covered by SA article mentioned below and on the company's conf call last week. Seems like the best case now is the per diem gets cut in half to $150 and they keep all their beds, under this scenario EBITDA is down by 10%+ which is what at least one sell side firm hit numbers by. In this scenario, the dividend is tight but if its worse and they lose the whole thing which seems increasing probable, the dividend cannot be covered.
3. BOP: the company out of nowhere lost a large facility (Cibola) at renewal, this was a surprise and was disclosed on earnings release and is another 3% earnings hit. As highlighted on the call, the Bureau of Prisons has actively reduced their prisoner population over the past few years; Congress getting rid of mandatory minimums can push this even further; more BOP contracts are up for renewal in 2017
4. California: driver of abovementioned prisoner population declines was Prop 47 which reduced drug sentencing, as the state is under court ruling to get population down and in-state operations are legally and politically favored; CXW as the swing capacity out-of-state provider got hit after Prop 47 and lost 1/2 of its CA inmates; next in November, Prop 57 is up for vote that would relax parole standards and if passed could hit up to the reminader of their CA population (~5K inmates and 9-10% of revenue and maybe more of EBITDA); Prop 57 excerpts are (i) “Authorizes parole consideration for people with nonviolent convictions who complete the full sentence for their primary offense” and (ii) “Encourages completion of rehabilitation and education programs by people with nonviolent convictions by offering the possibility of earning time off for good behavior”
5. Looking at the holders list, looks like weak hands as is ETF heavy due to inclusion in REIT indices (probably what dragged the stock up as REITs have generally ripped with interest rates down so much) but dedicated REIT investors don't really own the prison subsector. Is a yield stock so if dividend cut and/or loses REIT status, could be a problem.
6. Clinton and Trump are both bad outcomes. Clinton is against women/child detention and private prisons and Trump cuts off immigration and no need for the centers.
|Entry||08/10/2016 09:27 AM|
Firstly, apologies for not contributing sooner but I have been away for the past week.
Some thoughts on the various issues raised:
|Subject||Highly critical front page Washington Post article re: TX detention|
|Entry||08/15/2016 09:03 AM|
Washington Post: Inside the administration’s $1 billion deal to detain Central American asylum seekers
|Subject||Re: it just keeps coming--OIG report finds private prisons underperform|
|Entry||08/15/2016 01:09 PM|
Here is another related article talking CXW facility called Adams, sounds as bad as Cibola. This contract is up June 2017 with 2,000 beds.
Upcoming contracts 2H16:
Houston – ICE – rebid announced this year – 1,000 beds (GEO publicly stated that actively bidding here too)
Eden – BOP – rebid announced this year – 1,500 beds
McRae – BOP – November – 2,000 beds
Leavenworth – USMS – December – 1,000 beds
Northeast Ohio – USMS – December – 500 beds (down from 2,000 few quarters ago per 8K quarterly supplementals)
Contracts up in 2017:
Adams – BOP – June – 2,000 beds
Crossroads – Montana – June – 700 beds
West Tennessee – USMS – Sept – 600 beds
Webb – USMS – Nov – 500 beds
DC - District of Columbia – 500 beds (believe already lost)
|Subject||GOOD FOR YOU|
|Entry||08/18/2016 12:07 PM|
Not sure how a state makes the long-term case for using them after this Federal announcement. I know you talked about the limited asset value as there is no real alternative use for these facilities in the middle of nowhere. Do you view this as runoff of the existing contracts, plus some cushion for the states that continue with private prisons at this point or is there another way you're looking at it?
|Subject||Is this a zero?|
|Entry||08/18/2016 12:27 PM|
Great call Value_31.
In light of the DOJ news, do you think CXW is zero or is there some equity value left?
|Subject||Re: Re: GOOD FOR YOU|
|Entry||08/18/2016 02:26 PM|
Well done value_31! All BOP contracts for CXW are up in 2017. Hard to see how ICE after this gives them a good contract if at all on South Texas renewal now. Plus California already moving away from private prisons.
|Subject||Re: Re: Re: GOOD FOR YOU|
|Entry||08/18/2016 02:28 PM|
Also wondering if they get booted from the REIT indices as REIT Index ETFs own 25% of the stock....
|Subject||Re: Re: Re: GOOD FOR YOU|
|Entry||08/18/2016 02:57 PM|
The 10k says 40% federal but it's split between Bureau of Prison, ICE, and US Marshalls. There is a bar chart in the 10-K that gives the split.
It doesn't seem to look cheap here by my quick math. I know the sell-side is trying to defend the "only" 10% of revenue. No idea if that revenue is higher or lower margin than corporate average, but seems pretty safe to say that it's 50% incremental margins lost (vs. 30% corporate average). The 10-K seems to indicate 70% fixed cost, so 50% could be conservative.
$1,857 mm revenue at 11% is $204 mm of revenue. 50% incremental is $102 mm EBITDA impact. Using consensus next year of 470, that puts me at ~360 of EBITDA. Company seems to indicate maintenance capex of 60, so let's use that and call EBITDA-X of 300.
EV as I write this is around ~$3.4 billion vs. 300 EBITDA-X? Doesn't seem cheap to me...not to mention all the risk on losing additional contracts as a follow-on to this.
|Subject||Re: Re: Re: Re: Re: GOOD FOR YOU|
|Entry||08/18/2016 04:00 PM|
WMT could buy them and cut out the middle men:
|Subject||Re: Re: Re: Re: Re: Re: GOOD FOR YOU|
|Entry||08/18/2016 04:36 PM|
Believe the math could be much worse than the 300 EBITDA - Capex you put forward. You are bridging from consensus which does not properly capture the run rate impact of the ICE contract getting restruck materially lower for the family detention center in South Texas. This contract is huge for them...more commentary earlier in the thread. The US Marshals biz at risk in light of this news (also under DOJ; c 15% of revs) as well as other states clients, particularly CA where they have material exposure.
|Subject||Re: Re: Re: Re: Re: Re: Re: Re: GOOD FOR YOU|
|Entry||08/18/2016 05:24 PM|
Agree sell side math wrong:
- Canacord already hit their numbers before today assuming they lose 1/2 of Dilley TX detention facility which gets to $385M EBITDA
- BOP EBITDA hit from today's announcement is $50-$70M more plus they are reportedly likely to shortly lose ICE Houston facility which is another $10M; offset by some growth from projects in process gets to ~$325M EBITDA; if Dilley recontracted value is even worse could be another $20-$40M additional hit to $285-$305M
- Even at $325M, would be 11x EBITDA at today's closing and 4.5x levered and AFFO (which is a BS number anyway as understates capex) would go sub $1.80 which would require a 30-40% dividend cut assuming constant payout ratio; if they lose all of Dilley TX would be 12.5x EBITDA and 5.1x levered and AFFO is <$1.50 per share
- Note that the leverage covenant in their bank debt is 5x
- Even if $325M is a new base EBITDA, there is no growth opportunity and still risk from CA Prop 57 and for the States, ICE and USMS to follow the Fed's lead to move away; does this sector slowly die like for-profit education?
- REIT dedicated funds are unlikely to ever touch these compaines now, there is no natural owner, orphaned sector, who is buying besides covering short?
|Subject||Is this a Short?|
|Entry||08/19/2016 02:40 PM|
We seem to be agreeing around an EBITDA number of $300mm (I think this is actually conservative). At a 10.5x multiple I get to about 25% downside. This igonres further downside from ICE contract non-renewal outside of South Texas and Houston, California. Then layer on the potential multiple derate from change of REIT status. And a high op. leverage business with occupancy in massive decline. Plus at that level of EBITDA the 5x leverage covenant limits draws on the revolver to fund any future cash burn, dividend payments. I've heard the argument that there may not be government capacity for all these private prisoners coming online, but I'm not sure the statistics support that with over prisoner population declining. Thoughts?
|Subject||Re: Re: Is this a Short?|
|Entry||08/19/2016 07:19 PM|
This is in the context of where it has traded over the last few years. I think it would be hard to justify a much higher multiple than that given the secular trends, high maintenance capex and permanent regulatory risk. As far as the REIT status, cash flow and liquidity look tight (only $70mm of cash and lev. covenant limiting RCF) making it tough to sustainably pay a dividend. Not sure who's going to put in equity at this point.
|Entry||08/22/2016 05:48 AM|
In summary, I don't think we have reached the end-game yet. CXW has material exposure to federal counter-parties and I think it's unlikely this is limited to the BOP.
|Subject||Re: Some Thoughts|
|Entry||08/22/2016 08:45 AM|
This issue was featured in one of the shows by John Oliver. Looks like President Obama is keen to fix the issues with the current legal system that results on such a high incarceration rate in the US.
|Subject||Bernie Sanders writes to Department of Homeland Security: phase out ICE contracts with private priso|
|Entry||08/23/2016 04:45 AM|
"Given the impact on detainees, the high cost to taxpayers and the Department of Justice's recent decision, we believe the Department of Homeland Security can and should immediately begin phasing out for-profit, privately run immigration detention facilities. As each contract comes to the end of its term, the department should either decline to renew the contract or substantially reduce its scope"
|Subject||Bloomberg: Clinton likely act “within the first 100 days” to further eliminate federal use of priva|
|Entry||08/23/2016 09:47 AM|
(Bloomberg) -- If Hillary Clinton becomes president, she
|Subject||Inspector General / DOJ investigating CXW large US Marshal Service facility|
|Entry||08/24/2016 10:26 AM|
This is the same unit of the DOJ that put out the negative report for the BOP, ~2 weeks after which led to the decision to discontinue use of private prison operators. The US Marshal Service (USMS) is a federal unit as well and is undergoing the same scruitiny. ICE (Immigration and Customs) is also federal and reports to Dept. Homeland Security.
This is yet another seeming existential risk, the company's exposure to USMS (15% of revs) is even higher than BOP (9% of revs)... ICE is 28% of revs.
|Subject||Homeland Security Establishing a Review Of Privatized Immigration Detention|
|Entry||08/29/2016 01:32 PM|
|Subject||California Nearing Private Prisons Closures: Beacon Policy|
|Entry||09/06/2016 10:05 AM|
California Nearing Private Prisons Closures: Beacon Policy
By Kasia Klimasinska
(Bloomberg) -- Calif. bill prohibiting cities and counties from signing or renewing private prison contracts for federal immigrant detention centers may be passed by state senate this week, Beacon Policy Advisors say in e-mailed note.
|Subject||Corrections Corp, GEO Face Govt Decline, Democrat Attack: Beacon: Bloomberg|
|Entry||09/13/2016 01:12 PM|
Corrections Corp, GEO Face Govt Decline, Democrat Attack: Beacon
|Entry||09/19/2016 09:22 AM|
|Subject||Letter released from high ranking Democratic Senators (link)|
|Entry||09/26/2016 05:21 PM|
|Entry||10/17/2016 06:20 PM|
Thoughts on the renewal? Based on guidance it looks like the rate was cut roughly in half and notice period for contract cancellation was reduced from 90 to 60 days
|Entry||10/18/2016 06:25 AM|
On my numbers, I think the loss of operating income from the STFDC was ~70% vs. the original contract (recall CXW announced $9m of G&A savings in a Sep press release & this will be included in 2017 guidance - so when looking at the delta I think the rebased EPS is the one to look at).
Also, my reading of the release is that the company is not including any further contract losses in its guidance. If the BOP follows through then the 2017 guidance as currently stated will likely prove optimistic. CXW has three facilities currently contracted to BOP with contracts expiring before YE 2017 (McRae, Eden & Adams - combined current population just under 5k)
|Subject||Re: Re: STFDC|
|Entry||10/18/2016 08:46 AM|
Agreed. So, it sounds like you're still involved here. Where do you think the incremental downside at this price comes from? Prop57, the rest of ICE contracts, and maybe USMS at some point? Are you concerned at all that this renewal has some read-through to what DHS ultimately decides to do with private contracts? Why did ICE renew this contract directly in the face of their report coming out Nov. 30 and not just wait?
|Subject||Re: Re: Re: STFDC|
|Entry||10/18/2016 09:08 AM|
The contract is terminable with 60 days notice. The way this is structured is more like an option (in favour of ICE) than a contract imho. CXW will point to a "5 year contract" and the bulls will point to the contract being renewed as positives. While that might be right I think contract structure is very important.
In a similar way GEO was touting the recent renewal of the D Ray James Facility with the BOP. The renewal term was 2 years (previous contracts were 4-5 years) and there are already 11k beds to be renewed in 2017 (i.e. there is plenty of flexibility in 2017 already). fwiw, of the contracts that are maturing in 2017 4 out of 6 contracts are currently operating below minimum guarantee levels and the the BOP population is currently falling at just under 1k per month.
Contract structure & population trends are very important, I think.
|Subject||Re: is this still a short with Trump?|
|Entry||11/10/2016 06:28 AM|
Personally think there's a good argument to be made on the long side. Trump is pro private prisons and increased incarcerations for non-violent crimes. He's even more pro ICE who endorsed him during his campaign and his immigrant deportation policy would require a significant increase in detention. The Company is in an arguably better position than they were in July pre-DOJ memo when the stock was $30-35/sh. With the offsets being Prop57 was passed so CA faces headwinds still and STFRC economics were significantly reduced. Curious to hear other thoughts.
|Entry||11/10/2016 10:08 AM|
Newt Gingrich has been a longtime advocate for prison reform, so could potentially still be a negative outcome. A google search will pop up plenty of relevant articles on his and other conservative views, this is just one: