DALLAS — The $78 million of bonds used to finance a South Texas private prison face a possible downgrade after an inmate riot damaged the facility, Standard & Poor's warned on Feb. 24.
At BBB, the 2011 Willacy County Local Government Corporation bonds are two notches above a junk bond rating.
"The CreditWatch placement follows the relocation of 2,900 inmates to other detention facilities for an undetermined amount of time amid a protest at the corporation's corrections center and damages the facility has sustained," said Standard & Poor's credit analyst Ann Richardson.
"Sufficient information is not available at present to fully assess the effect of these events on our rating on the corporation," Richardson added.
Revenue from the facility's operation are the sole source of rental payments, which, in turn, service the debt.
Federal officials continued to evacuate the 2,900 inmates from the Willacy County Correctional Center in Raymondville, Texas, Tuesday after the riot was quelled late Sunday.
Officials described the facility as "uninhabitable" after inmates severely damaged plumbing, electrical systems and heating and ventilation equipment during three days of protest.
In June 2011, a contract was executed with the Federal Bureau of Prisons for the management and operation of the correctional facility to house approximately 3,000 low-security, adult male inmates, consisting primarily of undocumented aliens.
The contract includes a four-year base period with six additional one-year periods at the option of the FBOP while providing for a predetermined payment based on an occupancy of up to 90% with additional per diems for levels above 90%.
Standard & Poor's also maintains a rating on Willacy County Public Facilities Corp., another issuer for an adjacent facility. "We believe that facility was not materially affected by the protest," Richardson said.
The ratings agency said it would meet with the facility's management within the next 90 days as part of its ratings analysis.
"Factors that we will be evaluating include: the cost to repair the damage to the facilities, the impact of inmate displacement on ongoing expenditures, and any emerging uncertainty regarding the renewal of the operating contract, which is set to expire this coming June," Richardson said.
"Although we understand that there is interruption insurance in place, the long-term operational future of the facility remains uncertain at this point."
