Following several years of strong tourism growth, Nashville's convention center plans to price $775 million of tourism tax revenue bonds the week of Sept. 21, to help expand Music City Center.
Goldman Sachs & Co. is expected to be the bookrunning senior manager for the deal, to be issued by the Convention Center Authority of the Metropolitan Government of Nashville and Davidson County, which will have new money and refunding components.
Proceeds will be used to refund $152.4 million of Series 2010A-2 Build America Bonds maturing in 2043, which carry a 7.431% interest rate, and $312 million in Series 2010B Build America Bonds maturing in 2043, which carry a 6.731% interest rate.
Some proceeds will be used to cover the costs of phase one of the $1.2 billion convention center expansion, with future debt issuances expected in 2029 and 2031.
The bonds are rated Aa3 with a stable outlook by Moody's Ratings and A-plus with a positive outlook by S&P Global Ratings.
Steven D. Johnson, managing director at Hilltop Securities, which is serving as municipal advisor on the deal, said the maturities were still being finalized, but 2058 is expected to be the final maturity. The preliminary official statement hadn't been released as of press time. The bonds are expected to be tax-exempt.
Moody's said the convention's debt schedule would be "front loaded" through 2042.
Music City Center is a downtown convention center consisting of 1.2 million square feet of usable space. It has 350,000 square feet of exhibit hall space, two ballrooms, 60 meeting rooms and 1,800 covered parking spaces. Details about the expansion were unavailable.
Trading this type of bond is "always somewhat volatile," said John Mousseau, executive vice-president and chief investment officer at Cumberland Advisors, since repayment relies "on tax pledges, like hotel occupancy taxes, rental car taxes or parts of local sales taxes.
"This class of bonds almost always trades on the cheap side unless there is an additional ad valorem pledge by the city or county issuing the bonds and/or getting bond insurance," he said.
In addition to "a large boom in tourism that goes back to before COVID," Mousseau said, "people have made Nashville more than a destination with many people buying second homes there."
Hosting the Country Music Hall of Fame, Grand Ole Opry, the National Football League's Titans, the National Hockey League's Predators, Major League Soccer's Nashville SC, and a good restaurant scene, Mousseau said, "The convention center has some natural advantages built in that some other cities don't have."
Muni Credit News Publisher Joseph Krist said,
"Overall, the sector benefits from the increase in the non-traditional — think Comic Con ... Fanatics Fest and the like," Krist continued. "It's brought a whole new segment of people attending conventions."
"Convention centers have rebounded nicely from
Possible economic downturns did not faze Hallacy. "Although revenues may fluctuate, there is no recession on the horizon."
People are visiting Nashville for its music scene, he noted, which could get a boost from Dolly Parton's recent passing. "Bachelorette parties are legendary in the city. The commercial sectors, including healthcare, manufacturing, and financial services are also bringing many to town."
While an economic downturn would create debt service coverage issues for "any bonds that depend on discretionary travel and spending," Mousseau said, "Nashville has enough attractions that should blunt some of that [in the event of an] economic downturn."
Still, the convention center expansion for Nashville "is all part and parcel of the city's efforts to achieve 'big league' status," Krist said. "Growth in tourism revenues in Nashville have been steady, with 2026 on the way toward record revenues in spite of economic uncertainty and high gas prices. The role of the city as the center of the country music industry can't be underestimated."
Additional debt is not a concern, Hallacy said, "The requirements under the documents including the additional bonds test should ward off any undue concerns. The facility will be quite large so incremental changes may be all that is needed for some time."
Moody's said the authority "benefits from the regionally significant economic base of Nashville, strong revenue base within the authority's boundaries and satisfactory legal protections." The authority has a long history of strong pledged revenue, dented only by a temporary decline during the pandemic.
The bonds' financial benefits "are partially constrained by the somewhat broad nature of the revenue base and limited ability to increase rates," Moody's said. The agency said it expects declines in debt service coverage when the authority issues further debt in 2029.
Moody's said the refunding will leave the new issuance as its only outstanding debt.
The bonds' pledged revenues include hotel taxes within the metropolitan area, room occupancy taxes, airport ground transportation taxes, rental car taxes, state and local sales taxes generated at the convention center and two local hotels, and a portion of state and local sales taxes collected in the Tourism Development Zone around the center.
Pledged revenue has grown 245% since 2013, Moody's said.
The Tourism Development Zone taxes are set to expire in 2043. "Officials anticipate having discussions with the state at a later date to determine if the expiration could be extended," Moody's said.
S&P cited the
S&P said it had a positive outlook on the bonds due to the possibility of continued tourism growth.
Academy Securities, BofA Securities, FHN Financial Capital Markets, Fifth Third Securities, Raymond James & Associates, RBC Capital Markets and TD Financial Products will co-manage the deal.
