Prison Realty said in a statement an investor group led by an affiliate of
Fortress Investment Group LLC
and affiliates of
The Blackstone Group
, together with an affiliate of
Bank of America
, would purchase $315 million in securities. The entities would also commit to purchase an additional $35 million in securities in a newly configured company that would be created through the merger of Prison Realty and the companies collectively operating under the name
Corrections Corporation of America
Prison Realty, a cash-strapped, Nashville-based company that owns correctional and detention facilities, closed at a 52-week low of 5 3/4 Thursday. (Prison settled down 1/2, or 9%, to 5 1/4.)
As part of the restructuring, Doctor R. Crants, chairman and chief executive officer of Prison Realty, will resign as chief executive upon the closing of the transaction. He will step down immediately as chairman.
Thomas Beasley, a co-founder of the company, will replace Crants as interim chairman, effective immediately, and interim chief executive following the closing of the transaction.
The transaction is designed to eliminate Corrections Corporation of America's liquidity concerns.
"We believe the new credit facility and the investment by Fortress and Blackstone will ensure that the company has the financial resources to prosper," said Joseph V. Russell, chairman of Prison Realty's special committee of the board of directors.
Upon completion of the restructuring, the combined company will have a $1.2 billion new term loan and revolving credit facility from a group led by
Credit Suisse First Boston
The facility will replace Prison Realty's existing $1 billion credit facility.
In addition, up to $350 million will be generated from the sale of a new issue of 12% cumulative convertible preferred stock and warrants, primarily to the Investor Group.
The new issue would be convertible into the combined company's common stock at a price of $6.50 per share and the warrants would be exercisable at $7.50 per share.
Proceeds from the debt and equity issuances will be used to refinance the company's existing bank debt and to provide capital to fund the company's continued growth.
Existing Prison Realty shareholders would be offered the opportunity, through a rights offering, to "co-invest'' up to $75 million with the Investor Group and to receive preferred stock and warrants.
The Investor Group has agreed to acquire those securities and warrants not subscribed for by current shareholders to ensure the $350 million total.
The deal is subject to various approvals.