DALLAS - A private, for-profit detention center in South Texas lost its investment-grade rating after losing its operator.
Standard & Poor's on March 25 downgraded the Willacy County Detention Center to CCC-plus from BBB after the detention center for undocumented aliens lost its operator. The Federal Bureau of Prisons cancelled its contract with operator Management Training Corp. after inmates took over the 2,800-bed facility and caused enough damage to make the center uninhabitable.
The outlook on the new rating is negative.
"The negative outlook reflects our concern with the facility's available cash balance and future cash flows, which the corporation now depends on to make debt service payments in the short term," said Standard & Poor's credit analyst Ann Richardson. "The outlook also reflects our view that the issuer's ability to meet debt obligations over the following 12 months could be diminished if other available funds prove insufficient to make debt service payments and the debt service reserve fund is drawn down."
A first lien on and pledge of facility revenues derived from the facility's operation secure the $78.5 million of bonds issued in 2011.
"Therefore, in our view, and consistent with our rating definitions, we believe "that the FBOP's action has now left the bonds vulnerable to nonpayment, as the LGC is now dependent upon favorable business, financial, and economic conditions to meet its financial commitment on the obligation," Richardson said.
"Although we believe the LGC's financial commitment appears to be unsustainable in the long term, we believe that the issuer may not face a payment crisis over the next 12 months, given the access to available funds including the debt service reserve to support debt service payments," she said.
