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Corrections Corporation of America Message Board

  • blade9329 blade9329 Apr 4, 2000 11:54 PM Flag

    want someones opnion

    I read in the 99 year end results that they wrote
    off 76.4 million in impairment lossess on three
    prisons in Ky.Can someone explain to me what this
    entails? My wife works at one of those prisons and the
    first thing that CCa did when they purchased them was
    imediately DOUBLE the size of all three.They effectively
    went from a prison that was close to being maxed out
    to one that was less than half full.Reciently they
    signed a new contract with the state of Indiana which
    doubled their payment they now recieve to house Ky
    prisoners{$20 per day for Ky and $40 per day from Ind}They also
    went from being less than half full to a 93% occupancy
    rate.590 inmates now as opposed to 324 before.They have a
    full capacity of 630 beds but she said that is their
    policy to keep "a few beds open" incase they are needed
    or their occupancy rate would be higher.Their other
    two prisons have effectively doubled their
    populations as well.Seems that if they cant make money on an
    occupancy level such as this they might as well fold the
    tent and go home.By the way.I might be a fool but I've
    purchased shares the past few days because I do feel WHEN
    the Pl deal is anounced this is going to be a no
    brainer.It effectively shot to the moon before when it was
    just one company..Why then if they merge again
    wouldn't it do the same ? If they go under then write and
    tell me I'm the biggest fool in Ky..Probably am
    anyways :-)

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • During 4th quarter of 1999 CCA added 4500 new
      beds and 2161 new inmates. Thus occupancy
      dropped
      as more beds were added. There
      is always a lag
      time till new facilities are
      filled.For the full
      year CCA added 9548
      beds.With new construction
      slowing down
      occupancy numbers should go up if
      company
      gets it's act together.

    • Isn't 83.2% occupancy below the break-even?

    • If a corporation goes into BK, the only payments
      out must be allowed by a receiver appointed by the
      judge. This is done routinely and companies continue to
      operate that way. The court will allow payments that
      produce net income. Therefore, CCA would continue to pay
      on those leases that involve high occupancy prisons
      where CCA earns a positive cash flow on the individual
      prison. Other leases would go into default.

      CCA
      leased 34 of the 42 operating facilities owned by PZN as
      of 12/31/99. Therefore, they are the largest, but
      not the only tenant of PZN.

    • The problem is OPCO is private so we only get
      want CCA wants to give out in information, not what
      they legally have to. Makes life somewhat difficult.
      IMO, the situation is on the fence. Sure we all know
      that the combined companies can make it with a big
      capital infusion. But they don't have it and if PL fails
      to come thru the situation could be bad.

      As
      it appears, the bankers could flip and turn on
      CCA/PZN in order to take control, who knows. I have
      always felt Bankruptcy it not always about the firm not
      having the money or it's ability to make enough in the
      right situation, it's about control.

      OPCO is
      bankrupt and the bankers could declare it so. If OPCO goes
      bankrupt then PZN is bankrupt, simple as that. See the
      problem?

    • The miserable structure is wrong and the sooner
      we get re-merged the easier we and our bankers and
      auditors will feel. CCA makes money as you indicate, but
      PZN is taking all CCA makes and more as rent, so by
      re-merging, we eliminate this rent. Let's look at the value
      and why an LBO could work. On an operating basis, we
      have a stock trading at under 2.5x cash flow, probably
      under 5.5x a normalized run rate for eps. But lets go
      further. What might it be worth dead. If our blended cost
      of capital is say 10% today and we have roughly $1B
      of debt, our annual interest expense is $100m, give
      or take, well below our re-merged cash flow of
      perhaps $160-$180M, even with our occupancy problems, so
      the company isn't going away. Let's just look at its
      value, if it did. We know it costs PZN $39k to build a
      bed. Forgetting Transcor and the value of the
      contracts held, if we multiply $39k by roughly 37k owned
      and managed beds, we get $1.443B, less $1B of debt,
      leaves $443M or $3.85 per share. Not much, but 54% more
      than our stock trades for. Now we own, what, the fifth
      largest prison system in the world? Last I looked, there
      was nowhere else government could put these folks.
      You may recall a poster from Wisconsin last year who
      passed on an article saying that state was planning to
      build new prisons and its cost would be $65k per bed.
      Doc used to say it cost government $75k-$100k to
      build a bed. These numbers don't, of course, don't
      account for the fact that government also takes 3 years
      to build a prison versus 18 months for us. Let's
      look at the value though. At $65k per bed times 37k
      owned and managed beds, less debt, we are left with
      about $12.22 per share worth of assets. At $75k, our
      assets are worth $15.43 and at $100k, our assets are
      worth $23.47 per share. Perhaps Gotham is indeed on to
      something. Before I leave, if you short a stock at $7, you
      can indeed still be short at $2.50. Last I remember,
      a stock selling at $2.50 is almost 17% lower than a
      stock trading at $3. If you think, IMHO mistakenly,
      like some, who are worried about the auditors'
      comments, that we're going to zero, there would still be
      big gains ahead for a short. So, I repeat, where are
      they now?

      • 5 Replies to le_chacal_00
      • Excellent analysis by le_chacal_00. The facts
        remain the same: strong company in a lucrative market,
        good operational reputation (other than the debacle in
        Ohio caused by the DC crowd), knowledgeable prison
        managers (virtually all culled from recent retirees BOP
        and state), loyal and hardworking staff; yet, all
        brought down by greedy Doc and his sleazy son. Remerging
        will stop the shell game of taking money from one
        pocket and putting it in another. Who would think that
        charade would fly? It is no wonder the market is so leary
        of this crew.

      • I liked your post but I believe PZN number of
        beds in operation are low.At end of last year
        CCA
        had 57,689 domestic beds and increase of
        4500 beds
        in 4th quarter. So I think PZN beds
        are more than
        37,000 so your numbers are even
        better. Keep up the
        good work.

      • When you say that the REIT structure is the
        problem, and all we need to do is re-merge, you appear to
        be saying that the problem is that we charge CCA too
        much in rent. PZN already adjusted leases to CCA in
        1999, I believe. PZN could do that again.

        I
        think the problem has nothing to do with the REIT
        structure. We can always reduce rent. No bank would invoke a
        loan covenant to prohibit that if, as you say, it
        creates solvency. If we re-merge and Doc runs the show,
        PZN will probably fail. If we do not re-merge and we
        get new and competent management, PZN will probably
        succeed. And, if we re-merge and we get new, competent
        management, PZN will probably also succeed.

        Management
        is the issue, not corporate structure.

      • If you're not willing to load up at rights time
        you could be diluted 2/3, right? $200mm at say $1 is
        200mm NEW shares, that's a 2/3's haircut if you sit on
        your hands. Certainly something to consider when
        buying shares at this time.

        Of course the
        dilution to those that do buy in will be the cost of the
        offering, say 5% or so I think. You could really do the
        best to hold off for the rights offering IMO.
        Everything is known at that point.

      • How do you go from a $20 stock paying
        $2.20 per share in dividends to a
        $2 stock paying zilch in one year?

        The stock is trading for what the dividend
        used to be.

 
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