Nashville airport to offer $1.28 billion of bonds following years of growth

The Metropolitan Nashville Airport Authority is bringing $1.28 billion in bonds to the market next week following years of growth in enplanements at the Nashville International Airport and one rating upgrade and an upward outlook revision.

Enplanements have more than doubled in the last 10 years, according to KBRA.

"This is the result of some two decades of efforts to make Nashville a 'big league' city," said Joseph Krist, publisher of Muni Credit News. "Its success in attracting white collar jobs and the existence of a long established tourist base has been clear."

The population of the metropolitan Nashville region was 2.15 million at the beginning of 2024, an 11% increase over five years and an almost 52% gain over 20 years, according to U.S. Census Bureau data collated by the Federal Reserve Bank of St. Louis.

John Hallacy, president of John Hallacy Consulting LLC, said the music industry draws visitors, as does its hosting of pre-wedding festivities. Manufacturing, healthcare and higher education are thriving.

The airport serves 118 destinations, up from 77 in 2019, said Howard Cure, director of municipal bond research at Evercore Wealth Management. The airport has very little regional competition, he said.

Nashville registered 12.06 million enplanements in 2024, up 34.9% from 2019, according to an online investor presentation about the deal.

"All airports within 250 miles of Nashville are small hubs with limited direct service and have higher average airfare than the airport." said Erin Thomas, media relations manager for the authority.

The bonds are expected to price on Wednesday, with $461 million of Series 2026A non-Alternative Minimum Tax tax-exempt bonds, $669 million of series 2026B tax-exempts subject to AMT, $66 million of Series 2026C non-AMT bonds and $80 million of Series 2026D AMT bonds coming to market.

BofA Securities is the lead underwriter. PFM is the municipal advisor. Hawkins Delafield & Wood is the bond counsel.

Ahead of the deal, KBRA upgraded the airport's senior lien revenue bonds to AA from AA-minus. The outlook is stable.

Fitch Ratings ahead of the deal lifted the outlook on its A-plus rating to positive from stable. The bonds are rated AA-minus with a stable outlook by S&P Global Ratings.

The Series 2026A and 2026B bonds are new money issuances to cover capital projects. The Series 2026C and 2026D bonds will refund or defease all or a portion of Series 2015 bonds.

The Series 2026A and 2026B bonds will have serial maturities from 2029 to 2046 and bullet maturities in 2051 and 2056. The Series 2026C and 2026D bonds will have serial maturities from 2027 to 2045. The optional redemption date or dates hadn't been set as of press time.

The bonds are senior bonds secured by a pledge of and lien on the authority's net revenues.

In its rating report S&P raised concerns about the fact that Southwest Airlines (LUV) has over 50% of enplanements at the airport each year, calling it a higher-than-average airline concentration.

"The history of high concentration airports being a problem gives one some pause," Krist said. "Nashville isn't Pittsburgh [International Airport], however, and 50%, while high, is still below Pittsburgh's 80% share held by US Airways when it went under [in the early 2000's]."

Pittsburgh is no longer a hub and traffic is down substantially since it lost connecting traffic.

"It will be interesting to see how Southwest (LUV) fares generally as it implements its new boarding systems and bag fees," Krist said.

Cure said, "Airline concentration is always a concern when judging airport credit risk. However, 80% of the passengers are origin and destination instead of connecting traffic. Therefore, if Southwest Airlines (LUV) were to scale back operations, presumably other airlines would meet the demand."

The airport has in progress or plans capital projects totaling $3.927 billion. These include expanding Concourse D with five new gates and concessions, building a new Concourse A with 16 gates, expanding ramp space for aircraft parking and de-icing, expanding and improving terminal roadways and building a garage.

The authority plans to use bond proceeds for 58% of the costs of the remaining planned capital improvements, according to KBRA. It expects to issue additional bonds in 2027 and 2029.

"If spaced out over time and working to keep debt service coverage above requirements, the debt load should not be an impediment," Hallacy said. "If a recession were to occur during the ramp up period, adjustments would be made. Phasing in of the projects could be extended in part."

Cure and Krist also said they weren't particularly concerned with the airport's plans to substantially increase its borrowing.

Senior debt service coverage is expected to go from 19.11 times in fiscal 2024 to 5.95 times in fiscal 2025, according to the bonds' investor presentation. Airport Media Relations Manager Thomas said debt service coverage was "substantially higher in years FY22-FY24 (after the pandemic) primarily due to [the authority] using federal relief funds of $30 million - $40 million annually to pay debt service during those years." The last of this money was a comparatively small $5.5 million used in fiscal 2025 that led to debt service coverage returning to "more normal levels," Thomas said.

The authority projects senior debt service coverage to fall steadily from 5.95 times in fiscal 2025 to 1.96 times in fiscal 2029. It projects coverage will take a small step down to 1.80 times in fiscal 2030 and then slowly go up from there, reaching 1.88 times in fiscal 2032.

Thomas said the authority's plans to borrow substantial amounts of money in the next few years explains the anticipated declines in debt service coverage. "While senior lien debt service coverage is forecast to be lower than the unusually high coverage ratios experienced in prior years, it's forecast to remain well above the 1.25 times minimum requirement of the senior bond resolution."

KBRA said its AA rating reflects the airport's economically diverse and growing air trade area. Employment growth has consistently been above state and national averages. Costs per enplanement remain low. The airport management provides strong oversight and maintenance of the CIP, with initial capital projects "completed substantially on-time and under budget," the rating report said.

For credit challenges, KBRA cited a large, growth-driven, multi-year capital plan "with inherent construction, implementation and completion risks." It also noted the rise in outstanding debt to fund the capital projects.

The authority draws a "significant portion of revenue from non-airline sources, representing 64% of operating revenue for FY2025," KBRA said.

Average airline cost per enplanement is competitive for a large hub airport at $9.16 in FY 2025, KBRA said. That will rise due to expected higher operating costs needed to serve increased passenger activity and higher debt costs related to the capital plan.

S&P made similar points to KBRA in explaining its AA-minus rating. Also, along with raising a concern about the airport's concentration, S&P said the airport has "few competitive peers within 100 miles."

Fitch in assigning the new positive outlooklifted its rating on the airport authority citied new information that nails down future debt issuances, finalizes the capital improvement plan and clarifies a previously adopted airline use and lease agreement. Fitch also cited the successful progress of the airport's capital program and its improved financial performance.

In the authority's investor presentation, it said it was the fastest growing U.S. large hub airport from calendar year 2019 to calendar year 2024.

Nashville is one of many airports tapping the municipal bond market for capital projects; recent deals have funded airports as small as Pensacola, Florida's and as large as Chicago O'Hare, and many more for mid-size airports include Columbus, Ohio and Sacramento, California.

On Dec. 11 Moody's upgraded its sector airport outlook to stable from negative, "as we expect passenger traffic to resume growth in 2026 after this year's essentially flat performance."

On Dec. 9, S&P said, "At many airports, we expect ongoing increases in debt and operating expenses ? especially for large hubs expanding terminal and landside capacity ? along with softening air travel demand[,] could result in comparable but weaker median financial metrics in 2025 and 2026."