S&P May Adjust Ratings for Eight For-Profit Prisons

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DALLAS – Eight bond-financed, privately operated federal prisons are on Standard & Poor's Global Ratings' watch list for possible ratings changes after the agency corrected its risk criteria for the facilities.

"The CreditWatch developing placement reflects our view that there is at least a one-in-two likelihood that we will either lower or raise each rating on the bonds within the next 90 days," said Standard & Poor's credit analyst Ann Richardson.

S&P had been rating the for-profit facilities under its "Special Tax Bonds" and "U.S. Future Flow Securitization Methodology."

"We have determined that the revenues pledged as security for the bonds are not a special tax as described in the Special Tax criteria but are derived from a contract for the provision of services and therefore the Special Tax criteria do not apply," Richardson explained.

Six of the prisons are in Texas, one in Oklahoma and one in Arizona. Two are already below investment grade: Grady County Criminal Justice Authority in Grady, Okla., rated BB-plus; and Willacy County Local Government Corp. in Raymondville, Texas, rated CCC-plus.

Others subject to change are Willacy County Public Facility Corp; Garza County Public Facility Corp.; Fannin County Public Facility Corp.; and Prairie Lands Public Facilities Corp.; all in Texas and rated BBB.

In Arizona, the BBB rating for La Paz County Industrial Development Corp. is also under review.

"During the CreditWatch period, we will determine the applicable criteria for these bonds, including whether to continue to apply the Future Flow criteria, which apply only to debt secured by future congressional appropriations of cash flows from a U.S. government related entity, to federal prison project bonds," Richardson said. "We expect to resolve the CreditWatch placement within the next 90 days."

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