Activists have not let up in their campaigns to push for bankers to stop profiting from mass incarceration and the warehousing of immigrants. And now they have uncovered that one of the nation’s biggest banks–JPMorgan Chase–has an even deeper connection to the private prison industry than previously known.
An April 2018 report revealed that JPMorgan Chase is far and away the largest lender to private prison behemoths GEO Group and CoreCivic, holding $254 million in their debt as of June 2017. Now, advocacy group Educators for Migrant Justice has discovered on a private Thomson Reuters database that JPMorgan underwrote another $159.5 million bond for CoreCivic to finance the construction of a 2,432-bed corrections facility in Kansas.
The bond was issued this June through an unusual financing method, the “private placement,” that allows a company to keep the bond’s financial partners and investors secret.
CoreCivic spokesperson Steve Owen confirmed JPMorgan’s involvement to In These Times. “The financing solution provided by CoreCivic and JPMorgan enables the state of Kansas to have access to a modern, efficient correctional facility that is safer for inmates and employees,” Owen wrote in an email. While Owen argues that the private placement was used because it was most cost-effective for the project, it also obscures the involvement of JPMorgan Chase, which was listed as “sole placement agent” on the tear sheet viewed by In These Times.
Activist groups such as Make the Road New York have condemned JPMorgan’s financial entanglement with private prisons for years, arguing that the company’s professed commitment to human rights doesn’t fit with bringing a profit motive into locking up prisoners. Today, Make the Road New York, New York Communities for Change and other groups protested Jamie Dimon at a Goldman Sachs investment conference in Manhattan. “When will you stop being a backer of hate?” yelled one immigrant advocate at Dimon as he sat onstage in the Conrad Hotel ballroom. A banner unfurled in the lobby read “Jamie Dimon Loves Private Prisons.””
“This deal is just the latest example of how JPMorgan Chase, while claiming to support immigrants and communities of color, continues to bankroll the companies that put members of our communities in cages,” says Daniel Altschuler of Make the Road New York.
An unusual deal
This January, CoreCivic announced it won a contract from the Kansas Department of Corrections to construct a prison in Lansing. The facility, meant to replace a 150-year-old predecessor, would house state prisoners and be operated by the state of Kansas’ own corrections officers. The state would lease the facility from CoreCivic for 20 years, and thereafter take over ownership.
This reflects a new business model for CoreCivic and Geo Group, which typically run the prisons they build. But turning over operations could open up real estate deals in states resistant to privatization, and securing real estate is crucial to these companies because they operate as real estate investment trusts (REITs). If REITs earn a certain amount of revenues from real estate, they enjoy an exemption from corporate taxes. As a report from the anti-privatization research group In The Public Interest points out, this tax shelter saved Geo Group $43.6 million in 2017 alone.
“It’s very important that they own real estate,” said Shar Habibi, a researcher with In The Public Interest. “They see it as a way to get into states that haven’t been amenable to privatization. They are going into these states and saying, ‘We can build this for you.’”
But building real estate assets requires capital—and lots of it. That means turning to Wall Street.
A handful of banks provide revolving credit, term loans and bond underwriting to CoreCivic and Geo Group, helping them fund facility construction and general operations. This amounts to billions of dollars in debt. It’s fair to say that private prison companies would be unable to survive without this stream of financing. “They are very dependent on their relationship with these banks,” says Habibi.
CoreCivic decided to finance the Kansas facility through the private placement: a 20-year, $159.5 million bond at 4.43 percent. Unlike regular corporate bonds, which must be registered with the Securities and Exchange Commission, a private placement doesn’t have to receive a bond rating or disclose its investors. Activists who have scoured private prison financial records described the private placement bond as an unusual financing mechanism for private prison operators.
CoreCivic’s Owen said that two of its other facilities “were financed through privately placed debt,” though he didn’t specify which. In the case of Kansas, he said, the private placement made it cheaper for them to borrow than more traditional financing methods. “This directly benefited Kansas by reducing their annual lease payment to CoreCivic versus alternative financing methods,” Owen concluded.
That’s an odd enough claim, since private placements often require higher interest rates to entice investors, who get fewer protections than when buying public corporate bonds. But whether CoreCivic got to pay less to investors to finance the construction of the prison doesn’t mean Kansas couldn’t have done the job cheaper by itself.
A state legislative audit from July 2017 estimated that if Kansas merely borrowed funds itself to pay to construct the facility, it would pay between 3.4 and 4.1 percent interest, less than the 4.43 percent interest rate on the bond. “Other things being equal, bond financing with contracted maintenance appears to be less expensive than leasing through a long-term lease-purchase agreement,” the audit states.
Nevertheless, Kansas gave CoreCivic the contract.
The company saw this as a huge victory, opening up a new business line and a bounty of tax advantages. On an earnings call in May, CoreCivic CEO Damon Hininger said, “We know that many governments were closely watching the developments out of Kansas … We are in active discussions with numerous states as well as local governments, who are seeking and looking at similar public-private partnership solutions for their criminal justice infrastructure needs.”
The deal was enabled by JPMorgan. According to the tear sheet, “JPM acted as Sole Placement Agent on the transaction.” That means that they marketed the bond to prospective investors. However, there’s no need to issue a prospectus or get the bond rated, as banks would with a public bond offering. They just need to find willing investors. “The company needs to borrow $160 million, so you can round up say 80 rich guys who each want a home for $2 million,” explains Daniel Davies, a senior research advisor with Frontline Analysts and author of the book Lying for Money, a history of financial fraud.
Private placements from a publicly traded company like CoreCivic are relatively unusual. CoreCivic gets plenty of its financing directly from banks, including JPMorgan. The bank has provided at least $167.5 million in debt financing to CoreCivic and Geo Group, making it the industry’s single largest debt holder.
“If something’s already a public company and it’s doing a private placement, it would usually because they need the money really quick,” said Davies. “If they’re already public and they aren’t in a hurry, I would say that’s weird.”
The Kansas facility won’t be built for two years, making it unlikely that CoreCivic needed to speed up funding. However, when you consider the fact that the industry is under siege, a private placement for CoreCivic in this case might make sense.
Activists believe the anonymity of investors was a key factor. “We have no idea of the identity of these investors,” says In The Public Interest’s Habibi. “It didn’t seem like there was any logical business or financial reason [for the private placement].”
That means that JPMorgan Chase facilitated hidden debt financing for CoreCivic to carry out its new business strategy, something that will only increase the economic pull of mass incarceration and keep flush companies that are partnering with the Trump administration in caging migrants. And JPMorgan’s role in this deal was also hidden—until now.
Asked to comment on the private placement, Andrew Gray, a spokesperson for JPMorgan Chase, pointed out that the state and not CoreCivic would be operating the Kansas facility, but added, “Otherwise, we can’t comment further.”
The revelation of the private placement is sure to be part of the ongoing pressureplaced on JPMorgan Chase for its propping up of the private prison industry. That began today, with the protest in New York.