PE-Owned Prison Vendor Posts Record Earnings Despite ESG Woes

(Bloomberg) -- Just a few months ago, prison vendor TKC Holdings Inc. could hardly find enough takers to refinance its $1.6 billion of debt. This week, it reported its best full-year earnings ever.

Private-equity owned TKC recorded about $300 million of earnings before interest, taxes, depreciation and amortization for the 12 months ended in June, according to a person with knowledge of the results, which were shared with investors on Wednesday. That’s up 10% compared to the same period a year earlier. The boost helped leverage decline to around 5.25, the lowest in the company’s history, the person said.

The strong performance only amplifies the dilemma credit investors face as they become increasingly sensitive to environmental, social and governance issues. While some are moving away from the for-profit prison industry because of ESG concerns, others are stepping in, attracted by near double-digit yields that are hard to come by elsewhere.

A representative for TKC and its private equity owner H.I.G. Capital declined to comment.

TKC, which provides commissary, food and telephone services to correctional facilities, benefited from several tailwinds during the pandemic, even though measures taken early to reduce overcrowding reduced overall prison populations.

Purchases of care packages and other gifts for inmates surged over the past year while visitations were suspended. They have remained elevated ever since, TKC Chief Executive Officer Christopher Alberta told investors on a Thursday conference call, according to the person, who asked not to be identified because the information is private.

In May, TKC was forced to pay yields as high as 10.5% to refinance $1.6 billion of debt, after losing the support of some of its previous lenders, Bloomberg reported.

TKC’s unsecured bonds have since rallied to as high as 108.3 cents on the dollar and last traded at 106.3 cents on Friday to yield more than 9%, according to Trace data.

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