Alabama Seeks Bank Assurance on Prison Bond After Barclays Exit

Alabama is looking for banks willing to underwrite a large bond sale for controversial prison projects and is asking firms’ senior management to provide assurances that they won’t drop out in the face of any activist backlash.

In November, the Alabama Corrections Institution Finance Authority issued a request for proposals to underwriting firms for the sale of as much as $785 million of bonds to finance prisons, according to a document obtained through a public records request. Submissions were due on Dec. 15.

The unusual demand for assurances comes after a bond financing for Alabama prison projects was scuttled earlier this year when the underwriter, Barclays Plc, dropped out after facing backlash for supporting the private prison industry. The state had wanted to contract with CoreCivic Inc., one of the largest operators of private detention centers in the U.S., to build and own the facilities.

As Barclays Prison Bond Unraveled, ESG Activists Scored Rare Win

The private prison business has long been targeted by activists who say they profit from mass incarceration and have an incentive to cut costs, hurting rehabilitation efforts.

The document asks respondents to detail how they would market the bonds “considering the result of the design-build-financing sale earlier this year and the overall trend of investors consciously moving away from supporting the infrastructure of prisons.”

“Please discuss whether your firm has, or has had, any prohibition from participating on financings related to prisons (public or private),” the state asked. “What assurances, or certifications will your firm’s senior management provide that it will not pull out of the financing should investors campaign against your firm from serving in the capacity of underwriter?”

Federal Lawsuit

The document also asks for underwriting firms to detail the experience they have with underwriting bonds sold for correctional facilities.

The responses to the request for proposals won’t be available until after the contract is awarded, Jacob Harper, a lawyer for the state’s finance department, said in an email. A spokesperson for the finance department did not respond to a request for comment about the state’s ability to secure lenders or how many banks had responded.

Alabama and its corrections department were sued by the U.S. Department of Justice in December 2020 for failing to protect male prisoners from violence and unsanitary conditions. State officials say the new facilities will improve conditions and better protect inmates.

In October, Governor Kay Ivey signed legislation that would authorize the use of bonds and pandemic relief aid to fund the construction of new prisons. Activists have criticized the use of the federal aid for that purpose.

The state’s request for proposals also asks if respondents can discuss their view on the issuer designating the bonds as so-called social bonds, a label used for projects that are seen as benefiting society. The document says that the state’s prison construction goals include providing better health care and educational services.

Bond proceeds would be spent on building men’s prisons in Alabama’s Elmore County and Escambia County, the document says.

PFM Financial Advisors is serving as the state’s adviser on the bond deal.

Related: Stifel No Longer Part of Scuttled Alabama Prison Bond Deal

To contact the reporter on this story:
Amanda Albright in New York at aalbright4@bloomberg.net

To contact the editors responsible for this story:
Elizabeth Campbell at ecampbell14@bloomberg.net

Michael B. Marois

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