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Equity sounds good

17 Jun 2020 By Antony Currie

Executives at one of America’s leading incarceration machines may have to start pushing a new take on ESG. CoreCivic on Wednesday said its board is considering a jailbreak from its structure as a real-estate investment trust – key to its ability to pay the bumper dividend which it also just suspended. Taking the company private is one option. But most major U.S. banks, with an ear to the social element of ESG risk, had already stopped lending to for-profit prison operators. As a result, CoreCivic would need investors for whom the E means equity, rather than environmental.

Lenders including three of the country’s largest – Bank of America, JPMorgan and Wells Fargo – and regional players like PNC Financial Services and U.S. Bancorp stopped providing new loans to the industry over the past year or so. That followed an outcry over the role of private jails in implementing Trump administration policies over the detention of immigrants. In December, CoreCivic relied on a foreign bank, Japan’s Nomura, to help arrange a $250 million loan. Broader concerns about racial injustice stemming from the death in Minneapolis police custody last month of George Floyd are likely to make it even harder for profit-making jailers to find new capital.

Assuming no debt financing for a buyout is available, that leaves equity. Mainstream private-equity players like KKR and Blackstone might balk, too, at putting any of their investors’ money into the Big House. Cerberus faced a backlash from its limited partners a few years ago over its ownership of gunmaker Remington. There may be smaller players, in the United States, Russia or beyond, willing to ignore the stigma. And CoreCivic’s management won’t be looking for a huge check: Wednesday’s 18% decline following the dividend suspension leaves it worth just $1.25 billion. That may be small enough for some oligarch somewhere to consider locking away capital for a few years.

 

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