The GEO Group upgraded to ’BB-’ by S&P on debt reduction

Investing.com -- S&P Global Ratings has upgraded The GEO Group Inc. to ’BB-’ from ’B+’ with a positive outlook, citing improved operating performance and significant debt reduction.

The company plans to use $222 million in net proceeds from the sale of its Lawton Facility in Oklahoma, along with liquidity from its new $450 million revolver, to repay senior secured debt. This debt reduction, combined with expected EBITDA growth, is projected to lower the company’s leverage from 3.8x as of March 31 to approximately 2.8x by the end of 2025.

The positive outlook reflects increased demand for GEO’s services due to the current U.S. administration’s aggressive immigration policies, which have led to higher utilization of GEO’s facilities by U.S. Immigration and Customs Enforcement (ICE).

Since early 2025, GEO has reactivated three previously idle facilities and secured significant government contracts, including a new U.S. Marshals Service contract for secure transportation and detention officer services. These new contracts are expected to generate over $200 million in additional annual revenue.

A government bill passed in early July has substantially increased funding for immigration enforcement, which S&P expects will further boost demand for GEO’s services. The rating agency sees significant upside potential for facilities housing detainees, potentially resulting in higher utilization and operational efficiencies.

S&P also noted that GEO’s stable cash flows under long-term contracts support the rating action. The Laken Riley Act, passed earlier in 2025, requires the government to detain undocumented immigrants charged with crimes, which is expected to keep ICE detention authorization above 50,000 beds across presidential administrations.

Since its debt restructuring in 2022, GEO has operated with a less aggressive financial policy, repaying over $500 million in debt. Under its credit facility covenants, the company can retain 25% of excess cash flow until September 2025 and 50% thereafter, which it can use for shareholder returns if leverage remains between 2.5x and 3.5x.

S&P indicated it could raise GEO’s rating further if the company maintains leverage below 3x with free operating cash flow to debt greater than 10%. Conversely, the outlook could be revised to stable if leverage remains above 3x due to lower-than-expected performance improvements or increased shareholder returns and acquisitions that deteriorate credit metrics.

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