Metro on Negative Rating Watch reflecting "fiscal strains" of Music City Center

From Business Wire:

Fitch Ratings takes the following action on the Metropolitan Government of Nashville and Davidson County, Tennessee (Metro) as part of its continuous surveillance effort:

--approximately $1.6 billion general obligation (GO) bonds, rated 'AA', placed on Rating Watch Negative;

--approximately $71 million district energy system bonds rated 'AA-', placed on Rating Watch Negative.

RATING RATIONALE:

--The Negative Rating Watch reflects the potential additional fiscal strains of a planned $638 million debt-financed convention center upon an already pressured general fund beset by slim reserve levels, significant long-term liabilities and constrained revenue-raising ability.

--Long-term financial pressures include a voter-approved charter amendment that limits Metro's ability to increase its millage as well as sizable pension and OPEB liabilities in comparison to its operating profile.

--Metro's diverse, stable, economic base, anchored by health care, professional and business services, and tourism, has solidified its position as a vital regional center.

--Debt levels, including the upcoming convention center financing, are above average, while amortization is below average.

WHAT COULD TRIGGER A DOWNGRADE?

--Issuance of convention center debt secured by a back-up pledge of non-tax general fund revenues could result in a minor downward adjustment to the rating, assuming the constancy of other credit factors.

A negative rating means that Metro's bonds are likely to be downgraded, in this case because of the strains a debt-financed Music City Center would put on the general funds in the Metro budget. If Metro bonds are downgraded their value drops and investors demand higher yields from them.