CXW: Company Completes Asset Sales; Deleveraging Measures Continue

By M. Marin



Asset Divestitures Advance Balance Sheet Objectives

CoreCivic (NYSE:CXW) announced yesterday that it has completed the divestiture of non-core assets that it discussed earlier in the quarter. CXW sold the membership interests of SSA Baltimore Holdings, LLC, which owns a roughly 541,000 square-foot Social Security Administration (SSA) office building in Baltimore, Maryland. The company also completed the sale of two additional properties earlier in 2Q21, including Capital Commerce Center and a roughly 217,000 square-foot warehouse. In total, the asset sales generated an aggregate sales price of $326.0 million. CXW purchased the properties in 2018 for a total of $293.6 million.

Accessing the Capital Markets To Refinance & Extend Debt Maturities

The asset sales are consistent with CXW’s core objective of reducing debt. CXW is using a portion of funds raised in recent asset sales to pare debt. By the end of 1Q21, total debt had declined to $1.72 billion from $$1.74 billion at year-end 2020. Importantly, CXW also recently extended the weighted average debt maturity from 5.3 years to 6.0 years. CXW raised $450 million in 2Q21 through the issuance of senior notes that mature in 2026 and redeemed all of its $250 million notes that were scheduled to mature in 2022. CXW also repaid $149 million of $350 million notes scheduled to mature in 2023 and pared its revolving credit facility by $80 million, using the combination of net proceeds from the issuance and cash from the balance sheet. The company believes its recent debt issuance also shows CXW’s access to financing and reduces its reliance on the banking sector.

ICE Needs Housing Capacity

Separately, we also believe the recent closure of two ICE detention centers along the border imply opportunities for CXW, as ICE seeks alternative capacity. While the Biden administration remains committed to reducing the numbers of people entering the country illegally at the southern border, it still faces the problem of housing the immigrants who have arrived.

In addition, some state or government agencies that formerly provided capacity to ICE are now reluctant to do so, which also implies that ICE will have to seek other options, we believe, at least in the short-term. For example, earlier this year, New Jersey introduced Bill No. 3361 and Illinois passed SB 667.

We note that CXW has minimal exposure in these states. It operates a small facility in New Jersey under a contract that expires in 3Q21 and does not operate in Illinois. Moreover, while the Biden administration remains committed to reducing the numbers of people entering the country illegally at the southern border and state governments propose measures to end ICE contracts, the administration nevertheless still faces the problem of housing people who have arrived. We believe this could, in turn, create an opportunity for CXW.

New Contract

The company also recently announced a new contract with Mahoning County, Ohio to utilize up to 990 beds at the Company’s 2,016-bed Northeast Ohio Correctional Center. Mahoning County is responsible for county inmates and federal detainees. The new contract underscores that the ongoing demand for housing continues. With courts re-opening post-pandemic, the demand is expected to continue and potentially increase.

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