MONTGOMERY, Ala. (WSFA) - Gov. Kay Ivey’s plan to build and lease several mega prisons at the cost of billions of dollars suffered a set back when it was confirmed that a major underwriter for the project has backed out.
Barclays Plc announced Monday it would no longer participate as an underwriter to help provide financing for correctional facilities in Alabama.
Ivey signed lease agreements in January to build two new prisons aimed at helping Alabama’s troubled prisons system. The new prisons would cost $3 billion. These are not private prisons. A company would build the prisons and lease them to the state. The Alabama Department of Corrections would operate the new facilities.
“While our objective was to enable the State to improve its facilities, we recognize that this is a complex and important issue. In light of the feedback that we have heard, we will continue to review our policies,” a spokesperson for the Barclays said in an email.
Gov. Kay Ivey expressed disappointment in the bank’s decision through a statement.
“The state of Alabama is disappointed that Barclays Plc has elected to no longer participate as an underwriting entity in the Alabama Prison Program,” Ivey said. “These new facilities, which will be leased, staffed, and operated by the state, are critical to the state’s public infrastructure needs and will be transformative in addressing the Alabama Department of Corrections’ longstanding challenges.”
Bloomberg reported KeyBanc Capital Markets was also resigning from the transaction.
Montgomery economist Dr. Keivan Deravi said an underwriter finds investors for a company and finds it “very unusual” for underwriters to pull out.
“But again, there is a sentiment in the industry, that they don’t want to get involved with the prison investment in general,” Deravi said.
Deravi said to encourage groups or people to invest in the prison plan, most likely, there will be a higher interest rate. That could result in the state footing a higher bill.
“That means that interest cost to the state would be higher than a traditional investment at this point in time,” he explained.
The governor said in a statement that the state will still move forward with the project.
“The state is fully committed to this project and has put in place new options to advance this vital transaction in a timely and efficient manner,” Ivey said. “These new, state-of-the-art facilities will provide safer, more secure correctional environments that better accommodate inmate rehabilitation, enhance medical and mental health services, and improve the quality of life for all those who live and work in them.”
The plan to build new prisons has faced criticism from groups who say the new facilities will not fix the system’s chronic issues.
Rep. Chris England, D-Tuscaloosa, said lack of desire to invest is another reason why the state should halt the plan.
“I don’t think any investor will be comfortable coming here to help build facilities to try to make a profit off warehousing people,” England said.