CXW - CoreCivic

[Guest roark33]

Yep, same guy....

[Guest roark33]

Kuppy is oblivious to 95% of the risks he takes on, but don't worry, no matter how the trade works, he will certainly say he won.  If you get his fund letters, his returns look a lot different from what he writes about publicly. 

 

And right on cue, he claims to have made money....sure, Kuppy.

 

[johnny]

Now that we have had the election outcome(s), figured I’d bump this with the “news, not news” stuff.

 

Biden signed the EO directing BOP (or was it DOJ) to not renew contracts for privately run facilities. Seems to leave the elephant firmly in the privately-run room (ICE detainees), and also doesn’t seem to mandate any contracts be early-terminated (despite the very important observations above that such a thing seems within gov’t rights)

 

Here’s my macro take: Violent crime is up this year, and AFAIK there’s still a overcapacity issue at many facilities (I’m a few years out of date so maybe this is no longer a problem). I still don’t see an easy path to a quick and painless divorce for the government and the industry here. How long is the full appropriations-to-shovel-to-ribbon-cutting ceremony for a new government prison? How sensitive is the pursuit of this to congressional opposition? Does the Biden administration have enough confidence in the anti-prison constituency to DEMAND republicans let THEM build more prisons? Assuming the Biden administration really wants to get this done, the only way to actually GET it done in his administration would be purchasing facilities, and if that’s the outcome, it seems like the consolidation makes demanding at least replacement value for the facilities quite plausible.

 

But still not long!

[Foreign Tuffett]

In the medium to long term, one possibility is simply that society simply imprisons/detains less people. This would be akin to what happened with psychiatric hospitals.

 

https://www.npr.org/2017/11/30/567477160/how-the-loss-of-u-s-psychiatric-hospitals-led-to-a-mental-health-crisis

[johnny]

I do think that substantial prisoner population reduction is the only decent bear case here. So my question is: is it feasible? What does the super narrow scope of Biden’s EO say about his administrations interest in actually pushing decarceration in a big way? The EO signed seems like the bare minimum gesture towards his campaign promise/theme, not a commitment to a bold new vision.

 

Given the strong hand progressives have right now, it’s just hard for me to believe that they’re oblivious to the sort of asymmetry involved in mass prisoner releases.

 

The upside is that you please maybe your most “locked-in” voters, so maybe you juice their turnout in future elections from the already quite high turnout they achieved recently.

 

The downside is you take 10 or 20 or 30 thousand rolls of a mysterious n-sided die that might land “your early released prisoner murders an entire family”.

 

Why not take the easy path, buy the prisons, staff them with some new (ideally unionized!) federal employees, and congratulate yourself for eliminating the evil profit motive from your now wonderful, just Government-Run Penal System? I’m trying really hard to figure out the political incentives here, but it’s a wall I can’t get over.

 

Even with the political incentives mapped out, I think any long-term bull needs to have some opinion on what the debt situation is like for these companies going forward. How much more costly does being blacklisted by the banks make them? If the situation is precarious enough, they may not in fact be able to credibly hold out for fair value on the sale of the properties to the USFG.

 

 

 

[JRM]

This sounds like a stupid question saying it out loud, but is this a potential Fannie\Freddie situation where the government takes over operation of the facilities and screw over the shareholders?

[johnny]

Don’t think they’re credible. The government is able to say whatever weird terms that are/n’t a “taking” were part of the government bailing them out.

 

The closest analogue here, I guess, would be playing hardball with the PrisonCos so that they can’t roll their debt, have a liquidity crisis, and then stepping in? Not sure I see that level of dedication/originality/sophistication coming from the team that is in charge of this.

 

I think the bearest of the bear case is this: the government plays total hardball, doesn’t extend any contracts (or early-terminates many) and also refuses to consider buying the properties back for anything but a massive massive discount to book. The government -is- sort of a monopsony buyer of these properties so, as long as there is credible continuity of government (IE republicans aren’t coming back any time soon) there’s no reason they can’t drive a VERY hard bargain that might approach some bagholder’s intuition about what an unconstitutional “taking” is.

 

But ultimately, what’s the issue? It’s not like these prisons were built/purchased/operated with any expectation other than leasing the assets to the state. You can’t complain that the state treated you unfairly by being the only plausible buyer for the asset you decided to turn a bunch of concrete into. These firms put themselves in the position to have the screws turned on them.

[n.r98]

A little random now but regardless, an interesting thread and great devils advocate by Johnny.

A few days ago, Barclays, in spite of its vows not to provide financing to private prisons, has extended a loan to CXW's LLC subsidiary for the building of the new Alabama facility which will be leased and staffed/operated entirely by the Alabama state; this is the model CXW is transitioning towards with a greater portion of NOI coming from the lease model; it generates high margins. I do think that there's value in here; many states suffer from old, inefficient facilities and would probably want to maintain partnership with the private sector and let them absorb the building capex. CXW's conversion to a taxable C corp to lever down and potentially repurchase shares seems like a plausible catalyst. Moreover, murder rates have also been up the past year.

It's perplexing how Geo which earns 20% from BOP and is more levered up, trades at a slight premium to CXW.