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S&P rates GEO Group loan BB+
S&P said it affirmed the BB- corporate credit rating on the GEO Group Inc.
The outlook is stable.
The agency also said it affirmed the BB+ issue-level ratings on the company's senior secured revolver and term loan with a recovery rating of 1, indicating 90% to 100% expected default recovery.
S&P also said it lowered the rating on the senior unsecured notes to B+ from BB- and revised the recovery rating to 5, indicating 10% to 30% expected default recovery, from 4.
The revision reflects the use of additional secured debt to fund the acquisition, which ranks ahead of the senior unsecured notes, thereby diluting the recovery value in the event of a payment default, the agency said.
S&P also said it assigned a BB+ rating to the proposed $700 million senior secured term loan B maturing in 2024.
The recovery rating on this debt is 1, indicating 90% to 100% expected default recovery.
GEO Group is seeking to issue a new $700 million senior secured term loan B, which it will use to refinance its existing term loan B, repay revolver borrowings and fund the acquisition of Community Education Centers Inc., the agency said.
At the close of the transaction, S&P said it estimates total recourse debt outstanding of about $2.4 billion.
The ratings reflect an expectation that GEO's leverage will only temporarily exceed 5x as it gradually reduces leverage to less than 5x over the next 12 months, the agency said.
The acquisition will diversify GEO's business further into residential re-entry services, which is viewed as consistent with its strategy and a credit positive because this business is less exposed to public criticism than the private detentions business receives, S&P explained.
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