Sporting a new name and a deal to extract itself from ongoing litigation, Corrections Corporation of America has ended its more than year-long nightmare.

Formerly Prison Realty Trust (NYSE: PZN), Corrections Corp. (NYSE: CXW) must shell out $15 million to end a restructuring deal that would have included an equity shot of between $315 million and $350 million. These funds were to come through the sale of new convertible preferred stocks and warrants to a group that includes interests from Fortress Investment Group, Blackstone Group and Bank of America.

The company develops and owns correctional and detention facilities. Headquartered in Nashville, TN., the company provides financing, design, construction and renovation of new and existing jails and prisons that it leases to both private and governmental managers.

As of March, the company owned or managed 74 correctional and detention facilities, with a total design capacity of approximately 67,000 beds, in 22 states, the District of Columbia, Puerto Rico and the United Kingdom. Of these facilities, 72 were operating and two were under construction. And at the end of last year, Corrections Corp. controlled approximately 52 percent of all beds under contract with private operators of correctional and detention facilities in the United States.

The company has walked a somewhat confusing path to reach its current state. In 1997, the original Corrections Corp. spun off Prison Realty as a real estate investment trust (REIT). Prison took the land, and Corrections Corp. took the operating contracts in hopes of maximizing earnings through the REIT tax plan.

By late 1999, the company was floundering enough to shed its REIT status and go back to a C Corp designation, being folded back into Corrections Corp. Poor market conditions, bad circumstances and questionable operating strategies forced the ouster of top management.

At the same time, the Fortress coalition decided it wanted a piece of the action. And just months later, Pacific Life Insurance Company announced that it would invest $200 million in equity.

For the second quarter, Corrections reported a net loss of $4.5 million, or 18 cents per share. While the numbers are not completely comparable because of the business' reorganization, this is an improvement over the same period last year, which boasted a loss of $81 million, or $6.89 per share.

The company's stock has risen considerably since late last year, when it bottomed out at less than $3 per share. This week, the price neared $14, a respectable leap toward its year-long high. This has been boosted by a reverse stock split earlier this year, as well as stock purchases by corporate insiders to the tune of more than 2 million shares last April.

What's the future of prison real estate?

It's not clear. California, for example, under Proposition 36 has changed its drug laws so that drug possession results in medical treatment rather than prison -- a change which will reduce the jail population by more than 35,000 prisoners a year. Nationally, the Justice Department reports that the state prison population declined by 6,200 inmates in the last six months of 2000 -- the first state decline since 1972.

But even with a declining inmate population there is still room for construction: The Justice Department says that at the end of last year "state prisons were operating between full capacity and 15 percent above capacity, while Federal prisons were operating at 31 percent above capacity."

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Published: August 15, 2001

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Lesley Hensell covers commercial real estate and financial issues for Realty Times. Based outside of Dallas, Lesley works with high-tech and real estate clients as an independent marketing and public relations consultant. She also writes for several publications, including the Dallas Morning News. E-mail Lesley at: lhensell@earthlink.net