Geo Group Lenders Prep for Debt Talks With Prison Operator

Lenders to private prison operator Geo Group Inc. are gearing up for debt talks, according to people with knowledge of the matter, hiring lawyers and interviewing financial advisers to protect their interests in the discussions.

A group of term loan holders tapped law firm Gibson Dunn & Crutcher while bondholders hired lawyers from Akin Gump Strauss Hauer & Feld, said the people, who asked not to be identified because the information is private. Both groups are interviewing financial advisory firms, they added.

The creditors are expecting Geo Group to negotiate a maturity extension on its 2024 term loan or an exchange of its unsecured 2026 bonds for longer-dated notes, according to the people. The company is permitted under its credit agreements to borrow up to $450 million in additional secured debt, if it finds willing lenders.

Geo Group and the law firms didn’t respond to requests for comment.

Shares of Geo Group rose as much as 2.7% to $6.37 after Bloomberg reported on the preparations for debt talks.

Geo Group Lenders Prep for Debt Talks With Prison Operator

Sector Scrutiny

Yet the pool of potential investors is small and shrinking. Wall Street is increasingly unwilling to lend to the private prison industry due to environmental, social and governance concerns. Scrutiny of private prisons has lately seen major banks including Bank of America Corp. and Barclays Plc pledge to stop lending to the operators.

The industry is under increased political pressure after President Joe Biden issued an executive order earlier this year directing his administration to end all partnerships with private prison operators once current contracts expire.

Credit graders to downgraded Geo Group’s ratings in March, citing social and governance risks that could hurt refinancing prospects. S&P Global Ratings cut the company two notches to B, or five steps below investment-grade, and Moody’s cut it to B2, also five notches into junk territory.

Geo Group said last month that it would suspend its quarterly dividend to prioritize debt repayment and begin a review of its corporate structure. In a call in May to discuss financial results, the company said it hired Lazard Ltd. and Skadden Arps Slate Meagher & Flom for advice on debt “alternatives” and drew down on a revolving credit line to boost cash.

The company’s stock has dropped 29% this year, and its 6% bonds due 2026 change hands for around 67 cents on the dollar, according to Trace. Geo Group refinanced about $194 million of debt in February in a deal led by StoneX Group Inc.

©2021 Bloomberg L.P.

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