Three Texas Private Lockups Fall to Junk-Bond Status

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DALLAS – Bonds for three more private detention centers in Texas lost their investment-grade ratings after federal policy shifted toward ending contracts with private operators.

The rating action by S&P Global ratings on facilities in Fannin, Hudspeth and Willacy counties affects about $62.3 million of bonds. Outlooks on the bonds remained negative.

"The CreditWatch negative placement reflects the uncertainty and potential negative implications from the current federal environment as various agencies continue to evaluate their use of private operators," S&P Global Ratings credit analyst Ann Richardson noted in one of the reports.

Since a new federal policy on use of private prisons and immigration detention centers was announced in August, S&P has downgraded three private prisons operating under contract with the Federal Bureau of Prisons and five private detention centers contracting with the U.S. Marshal's service.

On Aug. 18, U.S. Deputy Attorney General Sally Yates directed the federal Bureau of Prisons to allow contracts between the FBOP and the private operators to expire when they come up for renewal.

Ten days after the DOJ announcement, director of Homeland Security Jeh Johnson said that his department, which includes U.S. Immigration and Customs Enforcement, was considering a similar move. Johnson said he asked Judge William Webster, chair of the Homeland Security Advisory Council, to report its findings by Nov. 30.

In a debate with Republican Presidential nominee Donald Trump Sept. 26, Democratic nominee Hillary Clinton supported a halt in the use of private prisons and detention centers. Trump's plan to launch mass deportations could prove beneficial for the private detention industry, but he has not made the private detention centers a policy issue. In one interview with MSNBC host Chris Matthews, Trump did express support for the industry.

In rating actions announced Friday, S&P downgraded $29.88 million of bonds issued by the Fannin County Public Facilities Corp. to BB from BBB. The bonds issued in 2014 reach final maturity in 2034.

The $19.36 million of Hudspeth County PFC bonds issued for the West Texas Detention Center in 2014 fell to BB from BBB-plus. Those bonds mature in 2026.

Willacy County PFC's $19 million of bonds issued in 2002 dropped to BB-plus from BBB.

Willacy County has two facilities, the immigration detention center and a separate facility operated under contract with the FBOP financed with bonds from the Willacy County Local Government Corp. S&P called a default on the LGC bonds a "virtual certainty" after an inmate uprising that led the FBOP to cancel its contract.

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