https://news.littlesis.org/2019/08/14/private-prisons-now-face-87-4-financing-gap-as-banks-continue-to-flee-industry/
[If you want to stop the corporate agenda, attack them where they are
vulnerable. Money. The requirement for realistic financial guarantees
for oil spills in the Canadian Arctic offshore appears to have stopped
all interest in that area. Insurance requirements for new pipelines in
Canada are stalling new construction. Financing is clearly a new
vulnerability. Bayer/Monsanto are bleeding equity value as they
continue to lose the ability to sell glyphosate and court cases where
its use has harmed people. Big corporations won't listen to little
people, but they will pay attention when their profits are under attack.]
Private Prisons Now Face 87.4% Financing Gap as Banks Continue to Flee
Industry
By Gin Armstrong
August 14, 2019
As of August 2019, eight banks – JPMorgan Chase, Wells Fargo, Bank of
America, SunTrust, BNP Paribas, Fifth Third Bancorp, Barclays, and PNC –
have publicly committed to ending their future financing relationships
with the private prison industry, including CoreCivic and GEO Group.
Together these eight banks represent an estimated $2.35 billion – or
87.4% – of the credit lines and term loans that are central to these
companies’ operations.
Notably, all of the banks that provide credit and term loans to GEO
Group have committed to end their future financing relationships with
the industry. These commitments are the result of ongoing campaigns from
#FamiliesBelongTogether and #BackersOfHate to end Wall Street’s
financing and profiting off of the private prison industry.
This mass exodus of banks has had a cascading effect on the industry.
Fitch Ratings, one of the three premier credit rating agencies, recently
downgraded CoreCivic from BB+ to BB. This downgrade will make it more
difficult for CoreCivic to secure the plentiful, cheap credit and loans
they have accessed in the past.
Moreover, California’s $356 billion pension fund, CalPERS, is now
considering divesting from the industry due to “egregious activities” at
the border and the increased riskiness as banks continue to flee.
Finally, CBS MoneyWatch reported that stock values for CoreCivic (CXW)
and GEO Group (GEO) have been cut in half since April 2017.
Estimated Impact on CoreCivic and GEO Group’s Future Financing
As shown in the chart below, these eight banks provide an estimated
combined $2.352 billion of GEO and CoreCivic’s financing, or 87.4% of
the total financing currently available to these private prison
companies. Given the eight banks’ commitments to provide no new
financing, GEO Group and CoreCivic will potentially face a $2.352
billion shortfall when the current agreements expire.
GEO Group CoreCivic CoreCivic
Line of credit & term loan* Line of credit Term loan
JPMorgan Chase $282,000,000 $112,000,000 $28,000,000
Bank of America $282,000,000 $112,000,000 $28,000,000
SunTrust $282,000,000 $112,000,000 $28,000,000
Wells Fargo $282,000,000
BNP Paribas $282,000,000
Barclays $282,000,000
PNC
$112,000,000 $28,000,000
Fifth Third Bancorp
$80,000,000 $20,000,000
Total $1,692,000,000 $528,000,000 $132,000,000
Grand Total $2,352,000,000
Source: U.S. Securities and Exchange Commission filings for GEO Group
and CoreCivic [table displays correctly in online article]
* While GEO Group reports its total credit line and loan debt, it does
not make specific commitment amounts for each participating bank
publicly available. The breakdown in this table is an estimate.
As Real Estate Investment Trusts (REITs), CoreCivic and GEO Group are
able to keep their income taxes low as long as they pass on much of
their income to shareholders. This means that these companies depend
heavily on short term borrowing through lines of credit and loans to
keep their operations funded day-to-day. An 87.4% shortfall in the
availability of that financing could therefore materially impact their
ability to do business as usual.
The Industry Response
Indeed, these companies can no longer deny the writing on the wall. GEO
Group’s March 2019 quarterly report acknowledged the impact of these shifts:
“Public resistance to the use of public-private partner- ships for
correctional, detention and community-based facilities could result in
our inability to obtain new contracts or the loss of existing contracts,
impact our ability to obtain or refinance debt financing or enter into
commercial arrangements, which could have a material adverse effect on
our business, financial condition and results of operations.”
In their August 2019 Q2 investor call CoreCivic’s CEO Damon Hininger
derided the banks’ decisions to no longer finance his company:
“Despite many of the banks claims of conducting a thorough review
process, they clearly bow down to a small group of activists protesting
and conducting targeted social media campaigns pushing false information
rather than engage in a constructive dialogue about the facts… The most
disappointing aspect of these politicized bank decisions, disingenuous
activists efforts, and no solution proposals from politicians, is the
people who they ultimately hurt. It hurts the American people because of
poor policies are being discussed, made or awarded based on
misinformation rather than an open and honest dialogue on the challenges
at hand.”
From GEO Group’s inclusion of public resistance in their SEC filing and
the CoreCivic CEO’s tone on the investor call, it is clear that these
companies are on the defensive and recognize the financial impact they
are facing.
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