DALLAS — Standard & Poor's has raised its rating on the Willacy County, Texas, Public Facility Corp. one notch to BBB-plus and provided a stable outlook, despite volatility in the private prison industry and defaults in other Texas counties.
"We base the upgrade on what we view as the corporation's continued and projected strong annual debt service coverage," said Standard & Poor's credit analyst Apple Lo.
Willacy County, through its PFC, issued about $24 million of revenue bonds in 2002 to buy land and build a private prison in Raymondville. The county now leases the 500-inmate prison from the PFC.
The South Texas prison houses inmates for the United States Marshal's Service under a contract that was originally approved in 2002 and was renewed for another two years in 2011, according to Standard & Poor's. The contract can be renewed for up to 18 years.
Under the new contract, the county receives $86.74 per inmate, followed by annual increases. Management and Training Corp. continues to operate the prison. Project revenues received from operating the facility are paid directly to the trustee, who is required to set aside sufficient funds to make monthly lease payments.
Since 2006, inmate population equaled a daily inmate population of about 430 to 590, according to the rating agency.
"The stable outlook reflects our expectation for continued demand for the facility, which will likely result in ongoing good coverage of monthly rental payments and operational expenditures," Lo wrote. "We do not expect to change the rating within the next two years given the recent renewal of the contract with the USMS, which we believe will result in continued strong [debt service coverage]."
Elsewhere in Texas, falling crime rates, government budget cuts, and diversion of drug offenders has left many prison cells short of inmates expected when promoters and underwriters sold counties and local governments on the idea of building private lockups.
For facilities built to house undocumented immigrants, the sharp decline in illegal border crossings in recent years could prove troublesome.
More than 30,000 of the 93,000 county beds in Texas are empty, according to the Texas Commission on Jail Standards. Jones County in West Texas has defaulted on its debt for a jail in Anson that is unoccupied.
In Littlefield, northwest of Lubbock, a $10 million, 373-bed prison has been unoccupied for two years as the town tried to sell it. Littlefield continues to pay $65,000 per month debt service and has not defaulted.
In Falls County in Central Texas, a county-built private prison is looking for a new source of inmates after a for-profit company announced it was pulling out.