David Bowie Bonds & IP Securitization
By Srinivasan Venkataraghavan
Bowie Bonds are asset-backed securities of current and future revenues of the first 25 albums (287 songs) of David Bowie's collection recorded before 1990.
Issued by David Bowie in 1997, they were bought for $55 million by the Prudential Insurance Company. The 287 included songs also acted as collateral to insure the bond.
The Bonds were a ten-year issue, after which the royalties of the songs would return to David Bowie.
By forfeiting ten years worth of royalties, Bowie was able to receive $55 million up front, which allowed him to buy out the rights to the David Bowie songs owned by a former manager. David Bowie now owns the rights to every one of his songs.
The Bowie Bond issuance was perhaps the first instance of intellectual property rights securitization. The securitization of the collections of other artists, such James Brown, Ashford & Simpson and the Isley Brothers, later followed.
These Bonds are named Pullman Bonds after David Pullman, the banker who pushed the original Bowie deal.Bowie Bonds offer a rich 7.9% yield; however, this is not without risk.
In March 2004, Moody's Investors Service lowered the bonds from an A3 rating (the seventh highest rating) to Baa3, one notch above junk status.
This downgrade was prompted by lower-than-expected revenue "due to weakness in sales for recorded music." A downgrade to an unnamed company that guarantees the issue was also cited as a reason for the downgrade.
The success of Apple's iTunes and other legal online music retailers has led to a renewed interest in Bowie and Pullman Bonds.
At this time, Bowie Bonds are not available to individual investors.
Srinivasan Venkataraghavan is Chief Executive Officer, Altos Advisory Services
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