S&P upgrades GEO notes

S&P said it affirmed the BB- corporate credit rating on the GEO Group Inc.

The agency also said it affirmed the BB+ ratings on the company's senior secured revolver and term loan with a recovery rating of 1, indicating 90% to 100% expected default recovery.

S&P also said it raised the rating on the senior unsecured notes to BB- from B+.

The recovery rating is revised to 4, indicating 30% to 50% expected default recovery, from 5.

The outlook is stable.

All of the ratings were removed from CreditWatch, where they were placed with negative implications in August.

The ratings reflect an expectation the use of private prisons in the United States will not materially reduce in the near- to medium-term, S&P said.

GEO, one of the largest domestic players, will remain an important provider of prison space for federal and state government agencies, the agency said.

This is despite news that the Department of Justice intends to reduce use of private prisons, S&P explained.

The company also benefits from high barriers to entry in the private corrections industry, including significant capital spending to build and maintain detention facilities; specialized knowledge and competence to win contracts and manage the facilities; and a good market position in a highly regulated industry, the agency said.

S&P said it believes that GEO will maintain its market share because of its ability to deliver higher operating efficiency than public facilities and that there are budget constraints in governmental agencies that restrict them from building new facilities.

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