Moody's Raises GEO Group's (GEO) Unsecured Rating to 'Ba3'; Notes High Fixed-Charge Coverage, Robust Op. Margins

Moody's Investors Service upgraded GEO Group's (NYSE: GEO) senior unsecured rating to Ba3, from B1. The rating outlook is stable. Moody's also affirmed, with a stable outlook, GEO Group's corporate family at Ba3 as the preponderance of the REIT's debt is currently unsecured debt.

The following ratings were upgraded with a stable outlook:

GEO Group, Inc. - senior unsecured rating to Ba3, from B1; senior secured credit facility to Ba2, from Ba3

The following rating was affirmed with a stable outlook:

GEO Group, Inc. - corporate family rating at Ba3

RATINGS RATIONALE

Today's rating action reflects GEO's sound operational performance, continued improvement in operating margins, ample liquidity position, and high fixed charge coverage at 2.5x as of 2Q14. While the REIT's core business is highly vulnerable to government budgetary restraints, Moody's believes GEO's operating platform is diverse enough to absorb periods of modest deterioration in earnings without too much strain on its current rating.

In the last year, GEO has expanded its footprint in the US and abroad, enhancing its position as a leader in the private corrections industry; most notably, its recent announcement to develop and operate a new 1,000 bed corrections facility in Ravenhall, Australia. This unique opportunity presents the REIT with an additional avenue of growth and utilizes the REIT's expertise in providing services across its full GEO Continuum of Care which includes rehabilitation and community re-entry programs. This project coupled with newly awarded contracts reflect the continued need for prison privatization at the federal and state levels.

Moody's notes that GEO Group has negligible amounts of debt maturing through 2019 with no more than 1.2% of total debt maturing in any given year. It recently amended its $700 million credit revolver, extending its maturity date to August 2019. As outlined to Moody's, the REIT also added a A$225 million letter of credit facility maturing in August 2017 for its Ravenhall project in Australia.

The stable outlook reflects Moody's expectation that GEO Group will continue to grow while maintaining its solid credit metrics and adequate liquidity profile.

Moody's indicated that upward ratings movement would be dependent upon GEO Group achieving closer to $5 billion in gross assets, fixed charge coverage (EBITDAR/fixed charges (inclusive of interest expense, capitalized interest, principal amortization and rent expense)) above 2.5x on a sustainable basis, effective leverage below 40%, and operating margins above 25%.

Ratings pressure would likely result from secured debt levels above 20%, net debt to EBITDA above 5.5x, fixed charge coverage below 2.0x, and or a stall in revenue growth due to major client loss.

Moody's last rating action with respect to GEO Group was on March 12, 2013 when Moody's assigned a B1 to GEO's senior unsecured notes and revised the outlook to positive from stable.

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