Fitch: Correction Corp. notes BB+, revolver BBB-

Fitch Ratings said it assigned a BB+ rating to Correction Corp. of America's proposed $675 million senior unsecured notes due 2020 and 2023, along with a BBB- rating to its amended revolving credit facility.

The company's issuer default rating is BB+.

The outlook is stable.

The new bond issuance and upsized revolver are a result of the company's conversion to a real estate investment trust with a taxable REIT subsidiary structure, Fitch said.

The proceeds from the issuance will be used to refinance $465 million of outstanding 7¾% senior notes due 2017, to pay the cash portion of an earnings & profits dividend and for about $70 million in other costs associated with the transaction and REIT conversion, the agency said.

For lenders that agree to the amend & extend terms, the existing revolving credit facility is being extended to a December 2017 expiration from 2016 and upsized to as much as $900 million from $785 million, which provides additional liquidity to offset the weaker free cash flow profile, Fitch said.

The amended credit facility will have a $100 million accordion feature.

The REIT conversion does not place pressure on the ratings or outlook, the agency added.

However, Fitch said it does view the company's conversion as a slight negative from a credit perspective, driven primarily by the requirement to distribute at least 90% of taxable income to shareholders per regulations governing REITs.

The agency said it estimates the increased dividends will more than offset the potential tax savings and deteriorate the free cash flow profile by about $90 million as compared to the company before the conversion.

While this will restrain the company's ability to build more than one new correctional facility per year with free cash flow, management has increased its internal minimum liquidity threshold, which mitigates the increased reliance on consistent capital market access to grow and refinance indebtedness, Fitch added.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.