CoreCivic, the private prison company that has struggled to secure financing to build two of Alabama new prisons, will pay $56 million to settle a lawsuit levied by shareholders.
That news Monday came after it was learned earlier in the day that Barclays Capital and another underwriter in CoreCivic’s Alabama prison plan to build pulled out of the project after mounting criticism, and that the Public Finance Authority, a Winsconsin-based financial entity that was set to issue bonds for CoreCivic’s Alabama prison build, was also dropping out of the deal.
The lawsuit alleged that CoreCivic’s public statements to shareholders that the company provides high-quality services at a lower cost than government-run facilities were false, and that company executives knew this, according to the Associated Press.
A CoreCivic spokeswoman referred APR to a press release the company published on the settlement.
“We are pleased to resolve this matter and put it behind us in order to focus on the Company’s business,” said Damon Hininger, CoreCivic’s president, in the statement. “While we continue to believe the allegations in this case were without merit, we also believe that eliminating the risk, cost and distraction related to the litigation is in the best interest of CoreCivic and its shareholders.”
Barclays was underwriting CoreCivic’s push originally seeking a bond issue to raise $634 million for Government Real Estate Solutions of Alabama Holdings LLC, a CoreCivic-owned corporation, but last CoreCivic struggled to attract enough investors, which could mean higher interest rates and more cost to the state, a financial expert explained to APR on Monday.
“We have advised our client that we are no longer participating in the transaction intended to provide financing for correctional facilities in the State of Alabama,” a Barclays spokesperson wrote to APR on Monday. “While our objective was to enable the State to improve its facilities, we recognize that this is a complex and important issue. In light of the feedback that we have heard, we will continue to review our policies.”
KeyBanc Capital Markets, another underwriter on the deal, also pulled out Monday, and later in the day, the Wisconsin Examiner reported that so too had the Public Finance Authority, the Wisconsin-based entity that had planned to issue bonds for CoreCivic’s project.
“During the Request for Proposal (RFP) process, Barclays as lead underwriter for this project approached PFA to serve as a conduit issuer on the project,” Andy Phillips, the Public Finance Authority’s general counsel told the Wisconsin Examiner. “Since then, business dynamics have changed and the lead underwriter that brought PFA into this project has chosen to leave this deal. As a result, PFA is no longer part of this transaction.”
The exodus of banks and skepticism of investors comes after much criticism from numerous investors and activists, many of whom signed a letter this week encouraging investors to steer clear of the deal.
“This deal has disintegrated less than three weeks after it was made public, which speaks volumes about the future challenges of CoreCivic to secure funding for Alabama’s mega prisons,” said Carla Crowder, executive director of Alabama Appleseed Center for Law and Justice, in a message to APR on Monday. “Where will the financing possibly come from and how much more will this cost?”
“Now more than ever the taxpayers of Alabama deserve complete transparency about this process. How can we possibly trust CoreCivic now that we’ve learned they’re paying $56 million to settle a lawsuit over misrepresenting the value of its services?” Crowder continued. “Importantly, while the Legislature is still in session, there’s time to do what’s truly necessary to begin addressing Alabama’s prison crisis: pass the many bills introduced to send fewer people to prison, shorten sentences and fix Alabama’s draconian Habitual Offender Act.”