Last week’s pricing of $705.1 million of bonds for the NFL Tennessee Titans’ new stadium helps cement its place at the top of the list for American stadium subsidies.
Proceeds help finance the construction of what boosters call a state-of-the-art, $2.1 billion domed stadium with a capacity for 60,000 to replace Nissan Stadium, the team’s home since that venue opened in 1999.
The issuance adds to $500 million of bonds already pledged by the state government to the project.
The $1.2 billion total marks the largest public subsidy package ever seen for the development of a professional sports arena in U.S. history, surpassing the $850 million in state and local support cleared by New York for a new stadium for the NFL’s Buffalo Bills.
The price tag would make it the NFL’s second-most-expensive venue behind the $5 billion SoFi Stadium in Southern California.
Goldman Sachs and J.P. Morgan were lead managers and Hilltop Securities municipal advisor on the four-tranche negotiated sale comprised of $345.8 million of senior lien Series 2023A stadium bonds, and $79.6 million of Series B subordinates, both backed by dedicated tax revenues, as well as $59.4 million of non-tax revenue pledged Series Cs and $220.6 million of federally taxable, non-tax revenues pledged Series Ds.
The Series 2023A and Series 2023B bonds are insured by Assured Guaranty, with financial strength ratings of AA from S&P Global Ratings, AA-plus by Kroll Bond Rating Agency and A1 by Moody’s Investors Service, according to the official statement.
The Kroll Bond Rating Agency rated the Series A and Bs an underlying AA-minus and A-plus respectively, assigning stable outlooks to both; analysts pointed to the historic strength of pledged revenues supporting both the bonds, including a 1% increase in hotel taxes levied in Davidson County as part of a state-supported deal approved by Nashville’s Metropolitan City Council in April.
“Hotel Occupancy Taxes are the largest pledged revenue component for the financing,” said Harvey Zachem, a managing director in KBRA’s Public Finance rating group. “HOT revenues have increased at a compound annual growth rate of 12.6% between 2012 and 2022, and in-stadium sales taxes at a 5.9% CAGR. While both sources recorded reductions during the COVID-19 pandemic, fiscal year 2022 collections exceed any pre-pandemic year.”
Kroll considered several scenarios including “a pandemic-like event and the impact on pledged revenues with a slower recovery than has been experienced post-pandemic,” Zachem said.
“Under all scenarios, pledged revenues provide more than sufficient coverage of annual debt service requirements,” he said.
Underpinning the rating and the positive outlook from KBRA, is a growth in the local tourism industry anchored on Nashville’s music industry and evident in increasing numbers of stadium bookings and commercial construction; according to KBRA, there have been 37 new hotels with approximately 6,500 rooms built in and around Nashville since 2020, with an additional 48 hotels with 6,700 rooms currently being developed.
“The tourism industry is crucial to the strong performance of the HOT, as is economic growth that has fostered business travel, which engenders room demand that has led to recent and planned hotel construction,” Zachem said.
Kroll rated the Series 2023C and Series 2023D non-tax revenue backed bonds AA, notching them higher than the Series As and Bs on the additional security provided by a lien on ticket taxes and team rent, and other stadium sales in the event of any insufficiency.
“Pivotal to the Series 2023C and Series 2023D rating assignment is the additional pledge of non-tax general fund revenues by the Metropolitan Government of Nashville and Davidson County which serves as a backstop,” Kroll said.
“These factors provide support in the event of delayed construction, or even if the stadium was not built, which KBRA considers highly unlikely,” the rating agency said.
Moody’s Investors Service assigned its underlying A2 rating to the Series 2023A stadium bonds, its A3 special tax underlying rating to the Series 2023 B bonds, and its Aa3 non-ad valorem tax rating to both the Series 2023C and Series 2023D bonds, all with stable outlooks.
The Series A rating reflected “the narrow nature of the pledged revenues limited taxing boundaries within” and “the rapidly growing and regionally significant economic base of Metro Nashville,” Moody’s said. The Series B rating reflected a “satisfactory coverage spread” and the secondary nature of the debt.
S&P Global Ratings assigned its underlying A rating to the Series 2023A and 2023B stadium bonds citing “strong-to-adequate economic fundamentals and moderate-to-high revenue volatility.”
On July 10, S&P upgraded the Nashville/Davidson County metropolitan government’s general obligation bonds to AA-plus from AA.
“This upgrade marks the first upgrade Metro has received from S&P in as far back as Metro’s records show (to 1981),” Nashville Mayor John Cooper said in a statement. “The S&P upgrade to AA+ serves as an independent acknowledgment of the financial accomplishments Metro has made to stabilize its finances. Credit ratings are a key factor in determining the interest rate Metro pays on its infrastructure borrowing.”
In April, Nashville’s Metropolitan City Council voted to approve a state-backed proposal clearing land use and financing to support the stadium project.
It came after Nashville Mayor John Cooper pushed for new construction instead of renovations at Nissan Stadium, citing in his arguments a state-sanctioned cost analysis that concluded it could cost close to $2 billion to upgrade the 23-year-old arena though still has around 17 years left on its lifespan.
Nissan Stadium cost a total of $264 million and was completed in 1999, supported then by $156.8 million in state and local bond sales.
As part of a development deal negotiated by Mayor Phil Bredesen that helped lure the team to the state from its former home in Houston, the city’s government took ownership of the facility once it was completed.
Under Nashville’s new plan, Nissan Stadium will be demolished and the Titan’s current contract terminated when they moved into the new arena and the team will be required to waive $32 million of outstanding bills owed by the city for construction and maintenance on Nissan, as well as pay the remaining $30 million on previous bonds owed on the arena.
The Metro government would regain control of the 66 acres plot of land the stadium sits on as well, said Cooper’s office.