GEO Group planning to take out Cornell's 10¾% notes with merger

By Jennifer Lanning Drey

Portland, Ore., April 19 - GEO Group, Inc. plans to take out Cornell Cos. Inc.'s 10¾% senior notes, which GEO will assume in connection with a definitive merger agreement announced by the two companies Monday, George Zoley, chief executive officer of GEO, said during a conference call held to discuss the transaction.

GEO expects take out the notes under the terms of the indenture shortly after the closing of the transaction, using either its credit facility or another mechanism, Brian Evans, chief financial officer of GEO, said during the question-and-answer portion of the call.

GEO also plans to pay off Cornell's $68 million of revolving credit facility debt that it will assume under the transaction, Zoley said.

In total, GEO is assuming $300 million of Cornell debt under the transaction, comprised of $180 million of recourse debt and $120 million of non-recourse debt related to Cornell's special purpose entity Municipal Corrections Finance, LP bonds.

The transaction is valued at $685 million, which includes the debt assumption.

BNP Paribas has provided $150 million of committed financing for the transaction under the accordion feature of GEO's senior credit facility, which combined with GEO's current debt availability, will be used to finance all cash consideration payable under the terms of the transaction.

The merger is expected to close in the third quarter. Completion of the transaction is subject to approval of shareholders of both companies and federal regulatory agencies, as well as other customary conditions.

$1.5 billion combined revenue

During Monday's call, Zoley said the merger is expected to add $400 million in annual revenues, bringing the combined annual company revenue to more than $1.5 billion.

In addition, the transaction is expected to substantially increase GEO's EBITDA, net income and free cash flow, he said.

"This transaction will transform both of our companies, creating a significantly enhanced platform for growth and diversification," Zoley said.

Merger synergies are estimated at $12 million to $15 million annually.

"Combining our two companies' complimentary resources and expertise in key market segments within our industry will create a strong company that is well positioned to respond to the growing needs of our diverse government client base," Zoley said.

The combined company will manage and/or own 97 correctional and detention facilities and 32 behavioral health facilities.

GEO is a Boca Raton, Fla., provider of correctional, detention and residential treatment services.

Houston-based Cornell provides correction, detention, education, rehabilitation and treatment services for adults and juveniles.

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