Shares of Corrections Corp. of America surged 9% in morning trade Friday, but pared earlier gains of as much as 11%, after Moody’s Investors Service cut the for-profit prison operator’s credit rating to “junk” status. The credit rating agency downgraded the real estate investment trust’s (REIT) senior unsecured rating to Ba1 from Baa3, which is Moody’s lowest “investment grade” rating, and revised the rating outlook to negative from stable. On Thursday, Corrections Corp.’s shares plunged 35% after the Justice Department said it planned to phase out the use of for-profit prison operators. Moody’s said that while the BOP represented just about 9% of Corrections Corp.’s revenue, the steep selloff in Corrections Corp.’s stock has closed access to capital markets at least in the short term. “The rating actions and the negative outlook reflects the substantial uncertainty regarding the ultimate effect that the Department of Justice announcement will have on the REITs cash flows,” Moody’s said in a statement. The stock has lost 28% year to date, while the S&P 500 has gained 6.5%.
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