S&P Downgrades Two Detention Centers Citing New Federal Policy

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DALLAS – Two private immigration detention centers received S&P Global Ratings downgrades to junk on $172 million of bonds after two federal agencies announced initiatives to end or reduce use of such facilities.

The detention centers in Holtville, Calif., and Alvarado, Texas, are both new facilities, financed by public facilities corporations. Both were downgraded to BB from BBB; S&P retained negative outlooks on both.

Immigration detention centers operate under contract with the Immigration and Customs Enforcement unit of the Department of Homeland Security.

Private prisons that house federal criminal detainees serve the U.S. Bureau of Prisons, which is supervised by the U.S. Department of Justice.

The ICE facilities house about twice as many inmates as the BOP lockups.

Both departments have indicated a shift away from using contract operators to house prisoners and detainees, but their approaches are different.

The DOJ issued a blanket policy that contracts with 14 private prisons were not to be renewed.

Homeland Security referred its policy to a subcommittee that would render an opinion in November on how to reduce or eliminate use of the facilities.

"While we believe the Department of Justice actions and Department of Homeland Security subcommittee indicate a potential shift in federal policy with respect to private detention centers, we are distinguishing between contracts with the Federal Bureau of Prisons and ICE," wrote S&P Global Ratings credit analyst Jenny Poree.

The Texas detention center was financed with $63.4 million of revenue bonds issued by the Prairielands Public Facility Corp. in 2015 with final maturities in 2037.

The California facility was financed with $109 million of revenue bonds issued in 2014 by the La Paz County Industrial Development Authority in Arizona. Those bonds reach final maturity in 2040.

Analysts noted that the Federal Bureau of Prisons has more flexibility in housing inmates after contracts with the private prisons end because it also owns public prisons.

ICE, on the other hand, relies on contracts with private detention center operators or county governments to detain inmates. The turnover among immigrants is also higher, as they are deported or returned to their communities after their cases are heard.

"There is capacity within the FBOP system to transfer inmates to FBOP-operated facilities whereas according to ICE, there is only capacity to house 11% of the current detainee population in ICE owned and operated facilities," Poree wrote.

"We will continue to monitor the situation and take necessary rating actions as necessary," Poree added.

Even before the Department of Justice's Aug. 19 announcement of plans to discontinue use of the private detention centers, S&P had eight of the facilities on its watch list for downgrades.

On Sept. 6, S&P downgraded bonds used to finance lockups in Garza, Reeves, and Willacy counties in Texas.

S&P said those bonds were already on review because the agency had applied the wrong criteria to their ratings.

The new ICE policy could reduce the need for the Holtville and Alvarado facilities or lead to their contract non-renewal, "both of which could negatively affect its ability to make future debt service payments in the absence of more sustainable revenues," Poree said. "We could lower the rating if the subcommittee determines that there will be a shift away from the use of the facility or private operators or if immigration policy shifts in a direction that makes detention centers less utilized in favor of detention alternatives," she said.

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