Nashville to price about $502 million in midst of growth

Following several years of population growth and a recent boost in property tax revenues, the Metropolitan Government of Nashville and Davidson County, Tennessee, plans to price about $502 million in general obligation refunding bonds on Tuesday.

BofA Securities is the lead underwriter. Morgan Stanley (MS) is co-senior manager. Academy Securities, Loop Capital Markets, Oppenheimer & Co., Raymond James, Rice Financial Products Co. and Truist Securities are co-managers.

The Series 2026D bonds are rated Aa2 by Moody's Ratings, AA-plus by S&P Global Ratings and AA-plus by KBRA, all with stable outlooks.

The government, which runs both the city of Nashville and surrounding suburbs of Davidson County, is among the nation's most rapidly growing major urban areas, with a compound annual growth rate of 0.91% from 2014 to 2024, according to KBRA. Davidson County, including Nashville, had a population of 729,505 as of July 2024, according to the U.S. Census.

"I would expect growth to continue given the efforts undertaken in recent years especially as the population diversifies economically," said Joseph Krist, publisher of Muni Credit News. "The growth of professional sports and the expansion of the music industry beyond country music are all indicative of these efforts. Nashville continues to be attractive to corporations as well."

The government's finances also benefit from increases in property tax revenues in the current fiscal year following a countywide reassessment. In June the government set a tax rate resulting in 26% higher revenue from urban properties in the current fiscal year, after keeping the amount fixed for five years. Revenue from the suburban part of the county increased 39%.

The changes followed a 45% rise in median property values. A full reappraisal is done every four years. Property tax rates were lowered but placed substantially above a revenue neutral level.

"The 26% hike for [urban] residents is not terrible when taken into a six-year time frame ? 3.93% compounded," said John Mousseau, executive vice president and chief investment officer at Cumberland Advisors.

"Applying the same math to the county residents is 5.64%, a significant difference relative to the city," Mousseau said. "The assessed rate vs. property values declined but it's still a big nominal hit. In our opinion, it's coming in the rearview mirror."

Krist wasn't concerned. "They're not doing anything out of line with past practices and the revenue increase is within the bounds of the law."

Mousseau said, "It is hard to see growth continuing at the same rate if the tax burden is increasing at the new rate while the economy is cooling."

The Metro government increased its spending 15.9% in fiscal 2026 from fiscal 2025 levels. "With this kind of ? spending increase, it may look like the county is a little bit out over their skis from a debt burden viewpoint." Mousseau said.

The bonds mature from January 2027 to January 2041 and will be eligible for call at par beginning January 2036.

The Series 2026D bonds follow Series 2026A, 2026B, and 2026C GO bonds priced in February. The 2026A bonds mature from 2028 to 2036. Its 2036 maturity priced with a 2.62% yield. The 2026B bonds mature from 2037 to 2041. Its 2041 maturity priced with a 3.65% yield. The 2026C bonds mature 2042 to 2047. Its 2046 maturity priced with a 4.25% yield.

Proceeds from the bonds will be primarily used to refund Series 2016 GO bonds and to purchase Series 2017, 2018, 2021B and Series 2021C bonds through a tender offer. Because some of its proceeds will be used for a tender, the $502 million size of the Series 2026D bonds is subject to change.

The tender offer launched March 6 and expires Friday. The price for the securities excepting the 2021B will be calculated by adding or subtracting declared spreads to the BVAL, which vary from CUSIP to CUSIP. The 2021B, which is the only taxable security being tendered, will have a price determined by a spread subtracted from the U.S. Treasury yield.

The tender's dealer-managers are BofA Securities and Morgan Stanley (MS).

In its rating report, KBRA noted the metropolitan government's favorable socio-economic and demographic trends, diverse and growing property tax base, strong financial and budgeting practices and record of well-maintained financial operations.

"On a market value basis, estimated actual property values rose at a strong 12.8% compound annual growth rate to $220.8 billion, equating to a substantial $313,200 per capita," KBRA said.

"Ongoing, growth-driven capital expansion and accompanying indebtedness, the presence of contingent liabilities related to debt issued by other Metro-controlled entities, required subsidies to support Nashville General Hospital, and elevated fixed costs are associated with Metro's broad responsibilities as a combined city and county government," KBRA said.

"Although debt ratios are generally favorable, Metro's fixed cost burden, at 15.1% of governmental expenditures exclusive of contingent liabilities, is high for the rating category, driven by debt service obligations for both general and school purposes," KBRA said.

Metro's annual pay-go funding of other post-employment benefits is common among local governments, KBRA said, but the rating agency "views the $2.7 billion unfunded OPEB liability at fiscal year end as elevated relative to covered payroll."

The government authorized up to $158 million of tax anticipation notes in fiscal 2026 to fund spending in several tax supported funds. The three funds are borrowing from the Water and Sewerage Source Fund. "KBRA tracks this type of borrowing as neutral, provided it is used for seasonal property tax timing," said Linda Vanderperre, managing director of public finance at KBRA.

KBRA said governmental funds liquidity was "solid," at 116 days cash on hand.

The government has $3.7 billion in GO debt outstanding, KBRA reports. It has $5,239 GO debt per capita and $7,329 in direct and overlapping debt per capita.

The government reports it had $4.06 billion in GO debt as of March 6.

In explaining its AA-plus rating with a stable outlook, S&P pointed to similar factors as KBRA. It also noted a "diverse" economy and the city's status as Tennessee's capital.

S&P said the government's high debt burden was particularly concerning on a per capita basis. After the issuance, the government's total net direct debt and sales tax backed debt will be $6.1 billion, S&P said. S&P calculated the government's net direct debt per capita on June 30, 2025, to be $8,069 and its debt service cost to be 11% of revenues.

"Metro reported another general fund deficit in fiscal 2025 (year-end June 30), driven partly by planned drawdown for capital projects, transfer to debt service, and other one-time costs to bring its fund balance down to its policy of 17%," S&P said.

The government authorized a fiscal 2026 budget that is balanced, S&P reported. "Half way through the fiscal year, revenue and expenditures are tracking to budget."

Moody's said similar things to S&P and KBRA. "Available fund balance and liquidity ratios were healthy at the end of fiscal 2025, at 31.6% of annual revenues and 37.4% of annual revenues, respectively."

Metropolitan Treasurer Seth Pilkington did not respond to questions sent to him.

Bass, Berry & Sims is the bond counsel on the deal.