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Corrections Corporation of America Message Board

  • flipper_58 flipper_58 Jul 6, 2000 1:31 PM Flag

    The pref. A trading as if this firm

    going under.

    It's either the best buy
    around or the worse. I assume the fact the bank's gave
    an extra $55mm means they feel pretty good about
    getting their money back even in liquidation. Since the
    bank facility represents 50% of their appraised asset
    value they must feel this firm has $2billion in assets.
    The unsecured debenture and the pref. represent
    another $200mm on top.

    The issue in buying the
    unsecured bonds or the preferred are the resale of the
    assets. Granted a number of the beds were really stepped
    up but 50% more beds will have come on line at cost
    so there is a less dilutive effect.

    Is the
    sum worth $1.4b roughly? If so then the unsecured
    paper represents a good speculation. Since then the LOC
    is/will be $1.1b, unsecured $250mm and $50mm for lawyers
    to liquidate.

    For those interested, you all
    might want to follow WHC's REIT Correctional Prop.
    Trust. They are presently in the open market now selling
    a youth prison(Jena) that WHC had problems with.
    WHC needs the cash for new Fed contracts they
    received so CPV will sell make room for a new Fed
    facility. WHC's new 1,200 bed low security Rivers facility
    is expected to cost $62mm or $52k per bed! Wall
    Street for years has been using $35k for construction
    costs per bed which seem low now.

    Tell me if you
    think this company has $1.4 billion in assets to cover
    it's debts.

    "At March 31, 2000, the Company
    owned or was in the process of developing 52
    real
    estate properties, including 50 correctional and
    detention facilities and two
    corporate office buildings,
    of which 46 properties were operating, three
    were
    under construction or expansion and three were in the
    planning stages, with a
    total aggregate cost of $2.2
    billion. At March 31, 2000, CCA leased 37
    properties
    from the Company, governmental agencies leased six
    facilities from
    the Company, and private operators leased
    three facilities from the Company"

    "During
    January 2000, the Company completed construction at a
    cost of
    approximately $89.4 million of an 800-bed
    medium-security prison in Salford,
    England and entered into a
    25-year lease with Agecroft Prison Management,
    Inc."

    That's $112k per BED....

    I think the banks have
    figured it out, Wall Street has not as the they have
    turned there head on these very attractive
    assets.

    Brendy is right to assume that an asset like a business
    property is generally worth the cash flow it provides.
    Motels generally use to sell for 3 times revenue, no
    consideration for land unless it was a lot. The land and cost
    of the building were be worth FAR less. I knew a
    motel broker.

    Prisons are different to an
    extent. The only reason these are not full to brink is
    stupid politics. These prisons could all be sold for a
    good price in time. It makes common
    sense.

    JMHO.

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • Volume 523,700. $1.00 by next week
      very UNLIKELY!

    • in turn is a sub-paragraph to Balance
      Sheet Note CC.

    • from the balance sheet notes:
      (b) Requires
      Prison Realty to effect an offering of securities by a
      subsidiary of PZN backed by lease payments from the U K
      government relating to a prison facility located in Salford,
      England yielding net cash proceeds to Prison Realty of at
      Least L45,000,000, on or before February 28, 2001

    • There is no way the government steps in if PZN
      goes Ch 11. Ch 11 doesn't mean that operations cease,
      it simply means that debt holders take a haircut and
      equity holders get wiped out. PZN is a company with a
      very viable business model, but the wrong capital
      structure. There is no risk that anybody tries to liquidate
      the company, since its worth much more as an ongoing
      concern than in an asset sale. As such, there are no
      public safety issues associated with a Ch 11 filing. The
      US government is not in the business of bailing out
      private investors, except in very limited situations
      where they believe a higher purpose is served. The
      banking crisis was far different, because a potential
      collapse of the banking system had major implications for
      the health of the entire economy. A banking collapse
      can lead to a domino effect whereby the entire
      financial system freezes up. A PZN bankruptcy filing is in
      no way comparable.

      Get out of this dog while
      you can. Do the math -- a "reasonable" 7x cash flow
      (EBITDA) multiple on $200 mm of EBITDA pro forma for the
      combination of PZN/CCA, the new contract in California,
      reasonable increases in occupancy, etc. Factor in a
      mid-range estimate for payments required in relation to the
      shareholder litigation ($100 mm? $200 mm?) and the equity in
      this POS is worthless. For those who think I'm short,
      get a grip. I would if I could, but I can't get a
      locate to short this stock since it trades below $5 per
      share.

    • lists the prisons that have provisions for take over. Isn"t the Uk prision being coverted to cash?

    • There really shouldn't be any need for the gov't
      to step in. If PZN were to file BR, it would be
      chapter 11, reorganization. In short, they'd get DIP
      financing and continue to operate without interruption. I
      believe such a scenario would result in zero return the
      both the common and preferred shareholders.

      The
      unfortunate situation we now have is that despite the bad
      press, the "operations" are doing OK. They are a bit
      behind the 8-ball because they weren't able to fill the
      beds as quickly as forecasted. The real problem is
      that doc's antics over the past 18 months have
      virtually destroyed the Balance Sheet.

      There have
      been so many payments to banking groups, Blackstone,
      Investment Bankers as well as increased effective interest
      rates (see Brendy's post) that profitability (and more
      importantly cash flow) is almost becoming
      impossible.

      The best operation in the world will fail if you load
      on enough fees and interest payments. PZN is on the
      edge, I believe. But that's only a gut call. I stopped
      looking at the actual numbers when I sold at year-end.

    • Is Beasley on drugs??????
      Thanks to Doc????? For what? Raking
      the company of all of its assets and
      driving the company to Bankruptcy?

      You have got to be kidding.

    • Although it may not be the responsibility of
      govt, I believe it would step in and take over in a br
      situation. There is too much risk to the public if security
      fails due to understaffed prisons. It could be termed a
      national emergency. During the banking crisis, I watched
      the FDIC do things that were illegal in the name of
      public interest.

    • No, I don't believe that in a liquidation
      scenario the proceeds from asset sales would even cover
      the bank debt, much less the bonds or Preferred
      stock. I think the bank feels the same way, otherwise
      they would have forced PZN into bankruptcy and
      proceeded with asset sales.

      I think the bank made
      the difficult decision that it was smarter to invest
      more money into the enterprise in hopes that they
      would survive. The prisons have value only to the
      extent that they generate cash flow.

      Why couldn't
      they be sold? A few might be, but the short answer is
      that there simply is no market for used prisons that
      probably are not built to the required Federal/State specs
      and are scattered randomly throughout the US. It
      would take years to dispose of the few prisons that
      might ever be sold.

      Yes, in theory there is
      great demand for these prisons. But that same theory
      should have resulted in PZN's prisons never falling
      below 90% occupancy.

      I believe the only rational
      way to play the common or preferred is to assume that
      six months from now they'll either be at zero value
      or 3x their present value and invest
      accordingly.

      To buy the preferred instead of the common because
      there might be something left over after
      liquidation...I just can't get there.

      • 2 Replies to RetiredPaperman
      • Nice to have you battling back.

        What you
        say might be true. The aftermarket for these prisons
        is a thin one. But you forget the biggest value of
        these is the zoning not just the building itself...I
        hear this from the CPV people too.

        PZN's assets
        (and unfinished assets) are listed at $2.2b....for PZN
        to cover roughly ALL it's debts it needs it assets
        to be sold 63% of there stated value and for many
        prisons their construction cost. THe England and CA. City
        prison recently finished were $200mm in construction
        alone. A $1.4b asset coverage equals $28k a
        bed.

        You right, and bunch of old prison might not sell
        easily. But I disagree with you their ONLY value is from
        cash flow. If we were talking apartments, motels yes,
        but Gov't's want these things and they know what it
        cost and the effort to do this and Gov't don't care
        about apartments. I feel these are truly special
        situations. The prisons only have cash flow value to private
        operators.

        CPV is presently selling their Jena facility on the
        open market according to their CC a week ago. THis was
        set into motion after WHC recently won a Fed
        contract. It will be interesting to see the price and the
        buyer...it will give us an idea of the aftermarket. As I
        mentioned WHC recent Fed prison is being build in N.C. at
        $52k/bed.

        Maybe I'm all wet, I have been before. But everyone
        I've have ever talked to in the field(public or
        private) feels these assets are not just throw-aways. But
        as you say the fact is if they were worth so much
        someone would buy the company for $350mm, add the debt
        cost and you have a total cost of $1.75b or $35k a
        bed...construction cost as stated by Wall Street.

        Time will
        tell.

      • Excellent post. I think you're right on target with your comments.

    • MUST pay off $25 per share, PLUS dividends in arrears before the common shareholders would get a nickel.

      • 2 Replies to flipper_58
      • firm must pay $25 for pf.a, but only if they have
        the money -- that's why people are not willing to
        step up to the plate. IMO, the rights offering will
        flop without a sponsor like PL. In the absence of news
        (Doc leaving is not news), I see this stock going back
        to $2. Sorry, but the debt monster is just too big
        without a heavyweight to get this company moving forward.
        Slow liquidation seems to be the order of the day, and
        the banks are first in line. Hope I'm wrong -- common
        shareholders are always last in line.

      • Pref looks like it could be a better medium-term
        buy right now than the common. Not hard to imagine
        the pref at 12 (and up) in January after payment of
        $1 in dividends, for a gain of 67%. 67% on the
        common gets you to 4 5/8 (before any dividend).

 
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