Goldman Sachs Boosts Nashville’s Debt 40%

for Convention Center

By Darrell Preston

April 13 (Bloomberg) -- Nashville, home of country-music stars such as Taylor Swift and the Grand Ole Opry, will boost city-backed debt by almost 40 percent to borrow $633 million for a new convention center three times the size of the Tennessee municipality’s current one.

Bonds to be sold today by Nashville and Davidson County’s Convention Center Authority through investment banks led by Goldman Sachs Group Inc. pledge general-fund revenue if hotel, airport and rental-car taxes and use of the Music City Center aren’t enough to repay investors. The tourism revenue won’t be adequate, said Councilwoman Emily Evans, a former municipal bond underwriter.

“It’s a riverboat gamble with very little upside,” said Evans, who worked for 15 years at J.C. Bradford & Co., the Nashville firm acquired by Paine Webber in 2000. “It just doesn’t seem like a good bet to me.”

Nashville, the home of the Country Music Hall of Fame, hopes to enhance tourism by creating retail and parking areas, tripling exhibit space to 350,000 square feet and adding 64,000 square feet of ballrooms, according to the preliminary official statement.

The $415 million Music City Center will enable the city to compete for larger meetings, add 1,524 jobs and generate almost $135 million of new annual spending by 2017, according to a study by HVS Convention, Sports & Entertainment in Chicago on Jan. 6. The facility is forecast to yield almost $12 million in new tax revenue beyond tourism levies dedicated to the $40 million-a-year of debt service, said consulting firm HVS.

Attendance Down

With convention center attendance down nationwide -- a 30 percent decline in Las Vegas and 28 percent in Orlando, Florida, two of the largest convention markets in the U.S. -- Nashville’s taxpayers may wind up paying part of the cost if use of the new center falls short, said Heywood Sanders, professor of public administration at the University of Texas in San Antonio, who has studied convention centers.

“It’s quite a leap of faith,” said Sanders, who’s writing a book on convention center financing. “It’s a pretty large chunk of debt.”

The city is selling in four parts, with about $605 million as taxable Build America Bonds, which come with a 35 percent subsidy from the U.S. government under economic stimulus legislation passed last year by Congress.

Tourism Boost

A larger convention center is forecast to increase hotel room-tax receipts for the city to $30.5 million in 2014 from just over $28 million in 2009, according to a feasibility study released by HVS on March 26. By 2019, it’s estimated to exceed $40 million a year. At the same time the new borrowings will increase debt backed by the city’s general fund by 39.6 percent to $2.23 billion.

“We have an opportunity to take visitor taxes and fees, and invest them in a way that creates jobs and grows our local economy,” Mayor Karl Dean said in a Jan. 6 statement.

Fitch Ratings, which ranks the bonds being sold at A+, in evaluating the convention center debt, lowered the city’s general obligation grade by one rung on April 6 to AA-, its fourth-highest level, citing the “potential additional fiscal strains of the debt-financed convention center upon an already pressured general fund,” the company said. Projections on two tourism taxes “are untested” and “heavily dependent upon increased tourism” at the convention center, Fitch said.

“We realized the city feels it will be vital to increasing the desirability of downtown,” said Amy Laskey, an analyst at Fitch, in a phone interview. “The city already operated on a thinly balanced budget, so the debt does increase the risk for the general fund.”

New Borrowings

The biggest portion of the obligations is rated Aa3 by Moody’s Investors Service and A by Standard & Poor’s, the fourth- and sixth-highest rankings, respectively. Ten-year, A rated municipal bonds traded at yields of 4.16 percent yesterday, according to data collected by Bloomberg. That compares with yields of 3.3 percent for AAA rated debt.

Richard Riebeling, the city’s director of finance, didn’t return a phone call seeking comment on the sale. Wayne Placide, the city’s financial adviser with First Southwest Co. in Dallas, referred a request for comment to Jeff Scruggs, a managing director with Goldman Sachs. The firm’s spokesman, Michael DuVally, said Scruggs couldn’t be reached for comment.

Following are descriptions of pending sales of municipal debt in the U.S.:

CALIFORNIA EDUCATIONAL FACILITIES AUTHORITY, which administers financing for private higher-education facilities, plans to sell $250 million in tax-exempts as early as this week on behalf of Stanford University. The securities, backed by Stanford’s general obligation, will fund construction projects. Underwriters led by Morgan Stanley will the market the debt, which is top-rated, by Moody’s and Fitch. (Updated April 13)

CATHOLIC HEALTHCARE PARTNERS, the largest health-care system in Ohio, will issue $670 million through the County of Allen, Ohio. The offering includes about $440 million in fixed- rate tax-exempt revenue bonds to be sold as early as tomorrow and about $230 million in variable-rate securities on May 4, according to Moody’s. CHP, which operates health-care facilities in five states, will use the debt to refinance existing bonds, help repay a bank credit line used to buy a hospital, and help fund the construction of a new facility in Springfield, Ohio, Moody’s said. JPMorgan Chase & Co. will lead underwriters in marketing the securities, rated AA- by S&P and Fitch and A1 by Moody’s. (Added April 13)

CHILDREN’S HOSPITAL LOS ANGELES will sell $141.2 million in fixed-rate health-care revenue bonds through the California Health Facilities Financing Authority as soon as this week to refinance auction-rate securities from 2004 and a portion of variable-rate debt from 2008. Citigroup Inc. will market the notes, rated Baa2 by Moody’s, two levels above junk. (Added April 12).

ALABAMA PUBLIC SCHOOL AND COLLEGE AUTHORITY plans to issue about $181.4 million in fixed-rate capital improvement refinancing bonds tomorrow, $71.2 million of which will be part of a competitive sale. A group of underwriters led by Morgan Stanley will market the issue for the authority, whose debt is rated Aa2 by Moody’s, the third-highest of 10 investment grades. (Updated April 13).

RENSSELAER POLYTECHNIC INSTITUTE will sell $550 million in notes tomorrow, including $350 million in tax-exempt revenue bonds through the City of Troy Capital Resource Corp. and $200 in taxables through the university itself. The securities will help refinance existing debt and pay a swap termination fee associated with an earlier sale. JPMorgan Chase & Co. will market Rensselaer’s debt and Morgan Stanley will market the securities for Troy Capital Resource. The first portion is rated A3 by Moody’s, its fourth-lowest investment grade, and A by S&P, one level higher. (Updated April 13)

MASSACHUSETTS DEPARTMENT OF TRANSPORTATION, created last year in a merger of state agencies, plans to issue $592.3 million of variable-rate demand obligations today to match an interest-rate swap tied to its debt, according to a preliminary official statement. It already has sold $261.2 million of fixed- rate securities to lower its borrowing costs. The bonds were originally issued in 1997 and 1999 by the Massachusetts Turnpike Authority to finance Boston’s $14.9 billion “Big Dig,” the largest public works project in U.S. history. The subordinated bonds are secured by turnpike tolls and other revenue, such as state aid, and were rated AA-, fourth-highest, by Fitch on March 16. (Updated April 13)