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A ‘no trespassing’ sign is visible outside the Otay Mesa Detention Center, a federal ICE (Immigration & Customs Enforcement) detention center owned and operated by prison contractor CoreCivic, in the middle of the coronavirus disease (COVID-19) outbreak in San Diego, California, United States, April 11, 2020. REUTERS / Bing Guan / File Photo

NEW YORK, Jan.27 (Reuters) – CoreCivic and the GEO Group, two of America’s largest private prison companies, could lose up to a quarter of their revenues, or about $ 1 billion a year between them, under news limits on the area of ​​President Joe Biden.

Actions in the GEO group (GEO.N) and CoreCivic (CXW.N) took a hit on Tuesday after Biden signed an executive order to quash the U.S. government’s use of private prisons, part of what he called an initiative to combat systemic racism.

Tuesday’s action left both stocks near their lowest levels in more than a decade. Read more

GEO and CoreCivic’s actions had already been exhausted last year, as COVID-19 restrictions at the US-Mexico border and capacity restrictions for health reasons maintained the facilities they operate for immigration and US Customs (ICE) well below capacity.

Investors also viewed the new Biden administration to be generally hostile to the use of private prisons.

Both stocks have fallen more than 80% since the early days of Donald Trump’s presidency, when his uncompromising immigration policies filled ICE facilities with detained immigrants.

Biden’s current order applies to the Department of Justice’s federal contracts with private prisons, which would include facilities used by the Bureau of Prisons and the US Marshals Service, although the order does not specifically name these agencies. The ordinance does not apply to the Department of Homeland Security and therefore not to ICE facilities.

“It’s not positive for GEO Group or CoreCivic, but it also doesn’t blow up the business model,” said Joe Gomes, senior research analyst at Noble Capital Markets.

In 2019, CoreCivic derived 5% of its total revenue from its federal contracts with the Bureau of Prisons and 17% from the US Marshals, for a total of approximately $ 440 million. Its biggest customer in 2019 was ICE, accounting for 29% of the business.

At GEO Group, the US Marshals and the Bureau of Prisons accounted for 23% of total revenue in 2019, or roughly $ 570 million.

Neither company responded to requests for comment.

Although the use of private prisons increased under Trump, pressure from activists and investors had prompted some major Wall Street institutions to withdraw their support for the industry long before Biden’s order.

In 2019, JPMorgan (JPM.N), Bank of America (BAC.N) and SunTrust – which had taken out bonds or syndicated loans for CoreCivic and GEO Group – said they would stop funding private prison operations.

None of the prison companies have raised funds in the public markets since 2019, and Biden’s new order could increase credit risk, making it difficult for either company to refinance debt.

GEO Group has a debt of $ 250 million due in January 2022 and CoreCivic has a note of $ 250 million due in October 2022.

Both companies are rated speculative – or junk – by Moody’s and S&P, in part because their revenues are very sensitive to changes in government policy and public scrutiny of companies profiting from holding.

Reporting by Kate Duguid; Editing by Heather Timmons and Sam Holmes

Our standards: Thomson Reuters Trust Principles.

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