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Monday, 11 December 2017

ASSET-BACKED SECURITIES - Stardust securitisation sealed

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Ziggy Stardust has secured enough cash to take him well into his Golden Years, picking up a cool US$55m through a recently completed asset-backed issue arranged by Fahnestock & Co Inc. In doing so, rock star David Bowie also kicked off a new niche in the ever-expanding asset- backed market as the first issuer of securities backed by future music royalty receivables.

According to investment bankers who focus on exotic asset classes, the securitisation of future music receivables is a possibility for almost any artist with a proven stream of future royalty revenue, and other transactions already are mooted. RZO Entertainment, Bowie's business management company and tour producer, also represents the Rolling Stones and Paul Simon and runs the estate of Ira and George Gershwin among others.

As RZO officials are already familiar with the asset- backed securities industry, the natural assumption is that its clients are likely candidates. Insiders last week suggested the Rolling Stones might be next in the queue, holding a catalogue that has the same quality characteristics as Bowie's.

David Pullman, senior vice-president of Fahnestock & Co and head of all structured debt and securitisation for the company, admitted that the firm is working on similar transactions but would not elaborate on whether a Stones securitisation is underway.

According to ABS market folklore, Bowie and his RZO business manager Bill Zyblat were turned on to the idea of asset securitisation while trapped on a plane to Bermuda chock-full of ABS market players heading for last September's ABS conference. As the story goes, a chat ensued on the nature of their business and the suggestion was made to Bowie that almost anything can be securitised - even his future royalty rights.

However, Pullman insisted he had been approached by business associate Zyblat at least two months before Bowie stumbled upon the group of conference attendees on his way to purchase a home in Bermuda. "It's a bit of a stretch to think I could sell him [the idea] on a plane," Pullman said.

Although some mainstream asset packagers maintained they would not touch such a deal, the publicity has certainly brought a lot of attention to one of the smaller securitisation teams in the business - so much so that Pullman's entire structured asset securitisation group, Bowie bond and all, was picked off by a competitor during the structuring of the deal. Originally, the lead manager on the issue was listed as Gruntal & Co, Pullman's previous place of employment. The team transferred to Fahnestock in January.

The deal, first rumoured in early December, was issued through special purpose vehicle DJT Royalty Finance Co. The issue has a 10-year average life, and paid investors 7.9%. Pullman added that the deal received a rating of A3 from Moody's, although phone calls to the rating agency for confirmation were not returned. Pullman would not discuss fees on the transaction or the number of investors which soaked up the bond. The issue is backed by royalties on the publishing rights and master recordings of the first 25 albums of Bowie's extensive collection. Included in this list are Bowie's Gold albums (over 500,000 copies sold) including "The Rise and Fall of Ziggy Stardust and the Spiders from Mars", "Aladdin Sane", "Diamond Dogs", "David Live", "Young Americans", "Station to Station", "Never Let Me Down" and "Sound + Vision". Four albums which later went platinum (over 1m copies sold) also make up the list, including "ChangesOneBowie", "Let's Dance", "Tonight" and "ChangesBowie". No current or future releases were included in the deal.

The catalogue backing the issue has shown a steady history of sales, averaging over 1m units per year for the past three decades. In addition, although the royalties backing the issue come from a single artist, the revenue stream is geographically diverse.

By securitising these receivables, Bowies has access to cash up front instead of waiting for royalties to come in bit-by-bit over the next 10 years. "David had numerous options on the revenues of his catalogue. A traditional licence is what we all would have expected as usual, but he ventured into uncharted territory and broke new ground," said Bowie's manager Zyblat.

 

All international asset-backed bonds: bookrunners - 1/1/97 to date

 
RankManaging
No of
Total
Share
 bank or group
issues
US$(m)
(%)
1JP Morgan
2
1,150.00
68.62
2UBS
1
249.12
14.87
3Paribas
1
150.00
8.95
4BZW
1
110.74
6.61
5Merrill Lynch
1
16.00
0.95
 Total
6
1,675.86
 

Including fixed and floating-rate global, Euro and Yankee debt; excluding equity-related Source: IFR Securities Data

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