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Corrections Corporation of America Message Board

  • pzn_inmate pzn_inmate Feb 20, 2000 1:02 PM Flag

    Public Safety & a new deal

    Because public safety is involved, the operating
    business has no hope of winning contracts unless it is in
    sound financial condition. Bankruptcy is not a viable
    option. A large equity investment is necessary. The only
    concerns should be whether the terms are fair and provide
    a basis for the company to restructure its
    operations and return to profitability.

    The
    shareholder vote provides some leverage. It's very difficult
    to collect votes from retail shareholders. If a few
    institutions threaten to abstain or vote against the current
    deal then it will be unlikely to receive the necessary
    majority (although rejection of this deal without another
    deal lined up would leave the company and the stock in
    worse shape than now). I would like to see
    this:

    Blackstone is currently paying $350 million and then
    offering existing shareholders $35 million of their paper.
    I would like to see existing shareholders given the
    right to buy up to $100 million of the Blackstone
    paper. This would:

    1) significantly reduce the
    dilution (as long as you subscribe)

    2) require very
    little modification of the existing deal and therefore
    not impede the company from addressing its operating
    problems

    3) more closely align the interests of existing
    shareholders with Blackstone.

    Blackstone originally
    negotiated for a $250 million investment. Keep them at that
    level and let existing shareholders make up the
    balance.

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • Would somebody explain what they mean when they
      suggest that PZN might go bankrupt? Obviously, you can
      not go bankrupt by missing a dividend. The only risk
      that I am aware of is that losing REIT status (which
      has not occurred yet) would result in taxes due.
      Therefore, if REIT status can be retained, bankruptcy would
      not be a risk - - correct? Therefore, the only issue
      is whether PZN can pay 1999 dividends in the form of
      securities. That would allow retention of REIT status,
      eliminate the need to pay taxes, and allow the company to
      go forward without new acquisitions on a positive
      cash flow basis.

      • 2 Replies to yieldseeker
      • addressed many times on this message board and
        also by PZN itself. The distributions necessary to
        qualify for REIT status can be paid in cash or in
        securities, though the securities cannot be common stock of
        the issuer itself. Thus, PZN could not maintain REIT
        status merely by splitting the already-woefully
        low-priced common stock. However, PZN could easily issue
        preferred stock of any sort so as to satisfy the REIT
        distribution requirement.

        As to bankruptcy, there is
        the little matter of the $1 billion plus of bank debt
        that PZN owes. Servicing the debt, and even paying it
        back, should be a piece of cake, UNLESS there's
        something more worse going on from an operational
        standpoint than the company has disclosed.

      • OPCO is nearly dead. Without some deal it will be bankrupt. If OPCO dies then PZN dies too. The OPCO problems cannot be ignored. That was Dreman's mistake.

    • post...with new lows at 3.75....common does not
      look like a bargain unless it get close to 2...pfd a
      better investment.....spoke with a real smart
      person..who knows the math....believes upside exist but
      ,except for those buying at these levels...that the stock
      based on the blackstone numbers etc will never go past
      10...and he was very firm on the long term being never
      past 10....that the current deals locks in a high of
      10.....which i guess today looks alot better than 4....thus
      pfd interesting...but common more interesting at 2

    • The merger of OPCO and PZN is absolutely
      necessary. Merging is NOT equivalent to bankruptcy. Not
      merging IS equivalent to bankruptcy, as the separtate
      companies can no longer stand alone. A merger DOES give PZN
      shareholders something, namely all of OPCO, and relief from
      the burden of this complicated structure. The terms
      of the Blackstone deal, however, give a large
      portion of the combined cash flow to Blackstone - that's
      what people posting here are upset about. They aren't
      anti-merger, they're anti-Blackstone (or
      anti-deal).

      PZN can't give further relief to OPCO because of debt
      covenants.

    • with the caveat that I rode this thing down from
      $20 to $5...

      I see only two factors that would
      attract new money to PZN. First, just pure speculation
      that the common has been beaten down so low that it
      has 'value'. Second (and the best reason) is to
      participate in the Preferred.

      The 'value' premise
      doesn't work for me, as that's the reason I first bought
      at $20. The Preferred reason doesn't hold much
      appeal because I'd prefer capital gains to current
      income.

      If I ever purchase PZN again, it will be the common
      and it will be AFTER the ex-dates for getting the
      Preferred. Basically I believe after the ex-date we'll have
      a stub that might trade as low as $2 and that price
      assumes no fundamental bad news comes out.

      I don't
      believe it will go bankrupt because doc loses his main
      positive - liability protection and gets zero for his
      stock and options. But I do believe that some
      gamesmanship could push this thing down to $2 even BEFORE the
      Preferred ex dates come.

    • "preferred better". But then sold the stock on
      the basis if this capital infusion does NOT happen
      this stock could be facing a BK OPCO and the preferred
      is way down the credit ladder. I still think CPV,
      for yield hunters, is the "safer" way to play the
      private corrections rebound. Importantly, Chuck Jones is
      attempting right now, to build a prison and lease DIRECTLY a
      Gov't enities, signed deals first of course. Of course
      this opens up lots of opportunites because direct
      Gov't leases can be resold. The CPV problems are
      limited capital and margins that are narrowing due to
      short rates climbing. But this ability to monetize
      leases was something I was told PZN was to do, this
      frees up boat-loads of capital of course. This is why
      I'm involved in their story now.

    • Check out CMM-B. CMM is expected to come out of
      BK in April. The $2.88 div. pref. B, trading at
      $14.50, has over $4 in dividends arrears expected to be
      paid in full under the current BK plan(the preferreds
      are "unimpaired" thus keeping them out of the BK
      vote, better to pay them).

    • I wasn't sure which Preferred RAUGAR was
      referring to. The existing or the one to come. I agree with
      your concerns on the current Preferred. It is not
      presently paying nearly enough yield to entice me. While
      the possibility of BR may be low, anyone who says
      it's nil is kidding themselves. I wonder what the
      bonds are doing.

      One other thing, I believe that
      PZN common has a ceiling more in line with 6.5-7.5.
      It seems to me that an investor would either see
      this ceiling (because of the convertibility option) or
      none at all. I don't know someone can arrive at $10.

    • Are the accumulated dividends payable to new
      buyers, and do you think they will continue to pay on the
      preferred?? The common stock looks interesting if they can
      pay the dividends...

      With interest rates
      rising this will hurt new mortgages , it appears that
      they are into existing low grade debt...

    • Yes, past dividends are due to any new buyer, the
      "old" buyer by selling is giving up his rights to the
      accured dividends in arrears.

      I invite you to read
      the CMM board past messages, "stockmavin",
      diane_40_40" and a few others really have done a lot of work
      here. I was introduced (at higher prices) from a BK
      expert I know. They all generally claim there is
      $4/share in assets which work make the preferred OK. The
      fear has been the continued delay of the BK
      proceedings as a few of the unsecured creditors are trying to
      get more cash out of some recent asset sales. The
      secured creditors have approved the BK plan.

    • CMM is a REIT, they buy and leverage, and resell
      mortgages. They lump many mortgages together, secure them
      and resell them. What CMM largely owns left are
      called residuals, the A,B,C's trauches are sold off as
      these are left. They are paying mortgages with good
      cash flow, the question arises in the end depending on
      the mortgage pool...residuals come last in the payoff
      line. So it's a coin flip on what their worth. The GAAP
      accounting of residuals lists them at 1/2 maturity (I
      believe)so saying BV is $4 isn't totally off the wall.


      CMM like many mortgage REIT's didn't have cash flow
      problems, they had loans called due to collateral
      concerned. If 90% of the mortgage pool pays off and you own
      the last 10%, the residual....you will receive
      nothing. That's why it's ALWAYS good to becareful when
      buying mortgage mutual funds.....they goose them with
      lots of residuals that have huge, 15-20% yields.

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