The GEO Group (NYSE: GEO)
(“GEO”) announced today that it has signed a definitive agreement to purchase 100% of the partnership interests in Municipal Corrections Finance, L.P. (“MCF”) for approximately $27 million in cash plus the release of approximately $10 million in cash held in escrow for the benefit of MCF. MCF currently has $94 million in bond principal (the “MCF Bond”) outstanding, or $57 million in bond principal net of $36 million in restricted cash reserve funds. Closing of the transaction is subject to third party approvals, including consent of the MCF Bond trustee. The MCF Bond will not be recourse to nor be guaranteed by GEO.
MCF is a consolidated variable interest entity, which GEO assumed in August 2010 as a result of GEO’s acquisition of Cornell Companies, Inc. MCF was created in August 2001 as a special limited partnership to acquire eleven facilities which MCF leases back to GEO under a 20-year Master Lease Agreement ending in 2021, with options thereafter at GEO’s sole discretion to renew the sub-lease of each separate property for up to 25 additional years (the “Lease”).
As a result of the purchase of MCF, GEO will reduce future net cash payments associated with the Lease by $155 million over the remaining full term, inclusive of all renewal options and tax benefits. The net cash capital investment for GEO is $27 million, for which GEO will generate a return on capital at or above the rate typically generated by owned facilities. The transaction will also substantially increase GEO’s cash flows over the life of the Lease, which will enhance GEO’s ability to execute on its growth and shareholder value creation initiatives. Additionally, under the Lease, GEO is scheduled to have a five-year minimal rent period under the Lease starting approximately in 2016, resulting in estimated cash savings of $25 million per year based on the current annual cash rent payments to service the bonds. The transaction will have a neutral impact on earnings in the first year and will be accretive in future years. GEO expects to close the transaction during the second quarter of fiscal 2012.