The GEO Group (NYSE:GEO)
(“GEO”) announced today that it has completed the previously announced acquisition of 100% of the partnership interests in Municipal Corrections Finance, L.P. (“MCF”) for approximately $27 million. In connection with the acquisition, GEO redeemed the MCF bonds for approximately $67.0 million, net of bond cash reserves and inclusive of a make whole premium of approximately $15.0 million. The MCF bonds had a cash coupon rate of 8.47 percent and a net effective interest carrying cost of approximately 5.5 percent. The transaction gives GEO full ownership interest in 11 correctional properties, representing 10,000 beds, which were leased and operated by GEO and will save GEO approximately $155.0 million in future net cash payments, becoming accretive to earnings after 2012.
GEO financed the acquisition of the partnership interests in MCF and the redemption of the MCF bonds with a new $100.0 million, three-year term loan under its Senior Credit Facility. The new term loan bears interest at the same rate of GEO’s existing revolver line of credit at LIBOR plus 2.75 percent. In connection with this transaction, GEO also amended its Senior Credit Facility to increase its initial restricted payment basket to $50.0 million and increase the senior secured leverage ratio test to access the net income-based restricted payment basket from 2.5x to 2.75x.
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 leased back to GEO under a 20-year Master Lease Agreement (the “Lease”).
George C. Zoley, Chairman and CEO, said, “The strategic purchase of 100% of the partnership interests in MCF will significantly increase our cash flows by approximately $155 million over the life of the Lease, substantially enhancing our ability to execute on our recently announced shareholder value creation initiatives and our continued growth strategy.”