Thursday, January 27, 2005

Bowie Bonds Recap

Ever wonder what the deal was with Bowie Bonds? Read "Considering Intellectual Property" at the website of DLA Piper Rudnick Gray Cary. Here's the important part:

David Pullman was responsible for arranging the first securitisation of intellectual property. Musician David Bowie was looking for financing opportunities for, among other things, buying out his manager's minority share interest in his music catalogue. Bowie's objectives meant he was looking for a way to raise a lump-sum cash amount rather than to rely upon an income stream - indeed, Bowie reportedly had a regular cash flow of more than US$1 million per year from ownership rights in the copyrights in much of his music catalogue dating back to the 1960s and to the recording masters. So rather than entering into a new traditional distribution agreement at the expiration of his existing recording and distribution agreement, Pullman devised the Bowie bonds to meet Bowie's need for upfront cash.

Only limited information about the structure of the transaction is publicly available. Certainly, an SPV was formed. The assets Bowie sold to the SPV included the right to certain future royalty payments from 25 pre-1990 albums he recorded (more than 300 copyrights). The SPV issued bonds and Bowie's record distributor, EMI, provided certain credit enhancements. The bonds received a triple A investment grade rating by Moody's Investors Services.

The bonds had a 10-year average life and had a maturity of 15 years. Prudential Insurance Company purchased the bonds, netting US$55 million for Bowie. In a debt offering of this kind, the underlying copyrights would be used to secure the bonds. If the SPV defaults on its payment obligations to bondholders, the copyrights are permanently transferred to the bondholders. Until the event of default, of course, the copyright owner would retain the copyrights subject to a security interest held by the bondholders. After the bond obligations are met, the copyright owner holds the copyrights free of the security interest (just as a homeowner that has paid mortgage debt in full owns a home free of the mortgage).
I wish I could swim like the dolphins can swim.

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