By Rob Ford
It was with great sadness that I woke up on Monday morning to the news that David Bowie had passed away after a long battle with cancer.
He was one of the world’s most influential and ground-breaking musicians in a career spanning almost 50 years. He was a true innovator; constantly experimenting and reinventing himself, his musical personas, his sound, appearance and style, and his enduring popularity transcended the changing styles in popular music around him. He was also a successful actor, a writer of hit songs and producer of hit albums for other artists.
As a musician myself, I felt humbled by what he achieved in his musical career and blessed to have grown up with it.
As I thought about his achievements, I was also reminded of his other famous legacy – the “Bowie Bond™”; the pioneering 1997 securitisation of the royalties and sales of his music catalogue.
It was less well-known to his legions of fans but equally as ground-breaking as his music, and arguably created the template for securitisations of non-consumer driven assets (e.g. mortgages, car loans, credit cards etc.) going forward. Assets such as mortgages have essentially known future cashflows, but a music artist’s future radio plays or album sales are pretty much unknown – it was a real leap of faith – although the worldwide publicity around the deal at the time was probably enough to boost royalties and sales significantly in the short-medium term.
The deal itself was actually relatively small by today’s standards at $55m, secured by the rights to 287 of his songs, paying a coupon of 7.9%, but was never seen in the public markets as it was privately placed with a single investor and reportedly held until it matured 10 years later.
Whilst the idea of securitising future royalties, created by US principal financier/banker David Pullman – who actually trademarked the Bowie Bond name – was a brilliant concept, it didn’t really become a mainstream sector in itself as very few artists had either the longevity in their careers or, in many cases, fully owned the rights to their music. Other deals did follow, including notably James Brown and even the Motown catalogue, but it never really developed much beyond this.
However, it arguably created the concept for “future flow” securitisations, which have since been issued in many forms. For example, the securitisation of the revenues from portfolios of pubs has been used widely in the UK. Future sales of beer, spirits, food, even fruit machine revenues (which could arguably be compared to future radio plays and record sales) are secured against payments of principal and interest on the bonds.
Bowie’s musical legacy will undoubtedly last for years to come, as new generations of music fans listen to his timeless hits, but those of us in the ABS markets should also thank him for the legacy of the Bowie Bond concept, which will also be used for many years to come.
Ashes to Ashes and RIP, in gratitude for an amazing legacy.
Rob Ford is a founding partner and portfolio manager at TwentyFour Asset Management
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