GEO Group’s Debt Documents: Asset Sales And Investment Capacity

Xtract Research experts discuss asset sales and investment capacity under the GEO Group’s debt documents.

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In a new special report Xtract Research examines asset sales and investment capacity under the GEO Group’s debt documents.

The GEO Group’s Debt Documents

Highlights from the report include:

The Credit Agreement is a throwback of sorts, as its debt prepayment covenant actually restricts voluntary repayment of the senior notes, which would include open market purchase. Exceptions to this covenant include repayment with: (1) equity proceeds; (2) unsecured permitted refinancing debt; or (3) if the pro forma Senior Secured Leverage Ratio is less than or equal to 2.5x.

Selling assets to pay the bills will only help reduce Term Loan debt, unless Term Loan lenders decline a mandatory prepayment offer.

The bond asset sale covenants are relatively typical: proceeds cannot be used to repay bonds before the secured credit agreement, and the company has 365 days to comply with the use of proceeds menu to delever. A declined mandatory prepayment offer by term loan lenders, though, would not constitute compliance with the covenant.

Moving assets to Unrestricted Subsidiaries for liability management exercises is one genre of priming transaction seen with frequency over the last few years. A company can use its investment capacity to capitalize an unrestricted subsidiary, which because it is outside the covenants, can raise priming debt in an exchange or other transaction. However, GEO has rather limited investment capacity.

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