S&P: La Paz County Industrial Development Authority, AZ Bond Rating Lowered To 'BB' From 'BBB'; On CreditWatch Negative
The lowered rating reflects our view of the industry's inherent volatility, primarily because of the potential fluctuation for facility demand, its essentiality, and the uncertainty created by event risks and changes in policy at the federal level. As a result of the Aug. 18, 2016 memo by the U. S. Department of Justice directing the Federal Bureau of Prisons to "reduce and ultimately end the use of privately operated prisons" based on the assertion that they do not maintain the same level of safety and security and do not save substantially on costs relative to facilities operated by the Federal Bureau of Prisons the Department of Homeland Security directed a subcommittee to review its current policy and practices concerning the use of private immigration detention centers and evaluate whether the practice should be eliminated. A potential policy shift could have a significant impact on the credit quality of the bonds secured by revenues pledged under contracts with Immigration and Customs Enforcement (ICE) due to the nature of the federal contracts. All of the contracts with ICE are term-limited and subject to renewal and termination.
"While we believe the Department of Justice actions and Department of Homeland Security subcommittee indicate a potential shift in federal policy with respect to private detention centers, we are distinguishing between contracts with the Federal Bureau of Prisons and ICE," said S&P Global Ratings credit analyst Jenny Poree. "Further, there is capacity within the FBOP system to transfer inmates to FBOP operated facilities whereas according to ICE, there is only capacity to house 11% of the current detainee population in ICE owned and operated facilities, creating a practical limitation on the speed and magnitude of potential detainee movement. We will continue to monitor the situation and take necessary rating actions as necessary," Ms. Poree added.