CCA Gets Relief from FBP

Financially troubled firm losing shareholders’ confidence

In what amounts to a financial bailout, the Corrections Corporation of America (CCA) has received two contracts from the Federal Bureau of Prisons (FBP) worth $760 million to house nearly 3,500 federal inmates in California and New Mexico.

The FBP awarded the contracts to Prison Realty Trust Inc., which builds and manages prisons. CCA is the primary tenant, and the sister company, of the firm.

The financially strapped CCA lost more than $195 million in the first nine months of 1999. The company also owed Prison Realty $25 million for delinquent rent as late as Dec. 31, 1999. And Prison Realty is in default of a $40 million loan.

The contract with FBP pays CCA about $530 million to operate a federal facility in California City, Calif.; and $230 million for another in Cibola, N.M. Each contract is for three years with seven one-year options.

The Milwaukee Journal Sentinel reported that Wall Street analysts see the situation at Prison Realty as “increasingly bleak.” Shareholders are at risk because the company appears headed for bankruptcy. The newspaper also stated that Prison Realty is “urging shareholders to approve a massive restructuring deal that would infuse $350 million into a new company that would merge CCA, Prison Realty and other entities.” The company is already fighting a number of shareholder lawsuits.

On Aug. 29, Prison Realty’s stock, listed on the New York Stock Exchange under PZN, was trading at a paltry $2.06, down from its 52-week high of $14.18.