The Boca Raton-based giant — which had been scrambling to pivot to prisoner rehabilitation and other detention services — needed a miracle, and it got one in Donald Trump. President Trump rescinded the Obama memo and, along with his administration, began doling out even larger government contracts to for-profit prison operators. But despite all of that, the slump persists.
On a quarterly earnings call yesterday, GEO leadership had no choice but to address the elephant in the room.
"We recognize that media coverage of overcrowded border patrol facilities and the announcement by a handful of our financial institutions discontinuing future financing has caused volatility in our equity and debt markets," GEO founder and CEO George Zoley said. "Our shareholders should take comfort in knowing that we continue to have strong banking relationships with several dozens lenders and financial institutions in our senior credit facility."
Zoley and other company leaders bemoaned a "false narrative and deliberate mischaracterization" of GEO's role in running immigrant detention centers for ICE. Conditions at facilities run by large private-prison operators such as GEO and CoreCivic have been at the center of several scathing media investigations and government reports over the years. Detainees at GEO facilities have committed suicide, died of medical neglect, and been subjected to forced labor. Sustained public outcry and grassroots organizing around those abuses have caused politicians, pension managers, and Wall Street banks to take notice.
Last month, the California Public Employees' Retirement System (CalPERS) announced it had divested from GEO and CoreCivic. CalPERS followed in the steps of other mammoth pension funds, such as New York state's pension plan and the Philadelphia Board of Pensions and Retirements. Even more notable, California legislators recently passed a measure barring the state from incarcerating anyone in privately operated facilities after 2028.
The private sector hasn't sat idly by either. By the end of September, GEO's largest publicly known banking partners had announced they would cut all ties with the private prison industry. The list includes major financial companies such as Wells Fargo, Bank of America, JPMorgan Chase, SunTrust, BNP Paribas, PNC, Fifth Third Bancorp, and Barclays.
Because of the way their companies are structured, GEO and CoreCivic are required by law to pass most of their gains to investors, allowing them to save on taxes but forcing them to be extremely dependent upon short-term loans and lines of credit to continue operations. According to the watchdog news site Eyes on the Ties, as of August, those eight major banks represented more than 87 percent of the credit lines and term loans central to GEO and CoreCivic operations.
On yesterday's earnings call, however, GEO's senior vice president and chief financial officer, Brian Evans, contested those banks' importance to company operations.
"While a handful of banks have announced plans to not extend future financing arrangements to our industry, all of those banks are contractually obligated under our senior credit facility through May 2024," said Evans, who claimed the financial companies that jumped ship represented only 25 percent of GEO's total borrowing capacity. "Contrary to these misleading claims, we continue to enjoy access to capital with several dozens of lenders and financial institutions currently in our senior credit facility." (Evans did not name any of those banking partners.)
The pressure on private prison operators has been political as well as economic. Democratic members of Congress and presidential candidates have ramped up criticism of the industry. The 2020 Democratic frontrunners — former Vice President Joe Biden and Sens. Bernie Sanders and Elizabeth Warren — have pledged to shutter the use of for-profit prison operators.
The industry has responded by launching a massive public relations effort. Last month, GEO and CoreCivic teamed up with the Utah-based private prison operator Management & Training Corporation to create the advocacy group Day 1 Alliance. The group's website claims Day 1 Alliance is committed to "educating and informing Americans on the small but valued role the private sector plays in addressing corrections and detention challenges in the United States."