Meanwhile, because the largest inmate telecom-and-video providers generate a healthy flow of cash, they’ve attracted the interest of private equity, or PE. The fees that flow upward from prisoners and their families find their way to these firms and their investors. In 2013, for example, Global Tel Link, another major inmate phone-and-video provider, borrowed $885 million to fund dividend recapitalizations at the behest of its PE sponsor, American Securities; that debt would be paid back with the proceeds from inmate calls and video visitations.
PE firms have over the years traded provider companies among themselves. ICS, for example, is a subsidiary of Keefe Group, the largest prison-commissary provider in the country. Keefe Group is ultimately controlled by H.I.G. Capital, a $22 billion PE firm headquartered in Miami. H.I.G. once owned Securus. It sold it to another PE firm, Castle Harlan, in 2011. In 2013, Castle Harlan sold Securus to a third PE firm, Abry, for an estimated $640 million. In late July, a fourth, Platinum Equity, made a deal to acquire Securus for a reported $1.6 billion. This rise in valuation over a four-year period is indicative of how much money private equity thinks it can make from the industry.
The convoluted nature of PE ownership helps mask how such special dividends benefit the firms that own these companies. For example, the owner of record for Keefe Group and ICS is TKC Holdings, a company created by H.I.G. TKC carried about $1.35 billion in debt as of January, but took on even more debt last month in order to pay dividends to H.I.G. The credit-rating agency Moody’s, citing this “very aggressive” financial policy, hit TKC with a debt-ratings downgrade. In other words, in order to pay itself dividends, H.I.G. engaged in financial engineering that, Moody’s judged, damaged TKC’s credit rating. (Two calls to H.I.G. were not returned.)
Even a critic like Hatcher, the author and law professor, believes that video visitation has the potential for good. Such a service can complement in-person visits. It could allow an inmate to see a child’s school performance. It could substitute for an in-person visit when weather makes travel to a jail or prison hazardous. But Hatcher fears that it’s being used to restrict contact and drain money from people who are often already poor.
In July, Democratic Senator Tammy Duckworth of Illinois reintroduced the Video Visitation and Inmate Calling in Prisons Act of 2017 in an attempt to regulate what is now a largely unregulated business. Duckworth’s proposed legislation suggests that video visitation isn’t being used merely to supplement in-person visits, but rather to supplant them. (Similarly, the Prison Policy Institute has charged that in-person visitation bans and other restrictions are “designed to drive people from what was traditionally a free service towards an inferior, paid replacement.”) The law would make it clear that the FCC has authority to regulate video visitation, require the agency to make rules and assure reasonable rates, and restrict the banning of in-person visits in favor of video visitation. Duckworth’s press secretary, Sean Savett, wrote in an email that the bill has been referred to the Senate Judiciary Committee, where its fate is uncertain.