ASSET-BACKED SECURITIES - Ziggy bonds
The asset-backed market could be in for some ch-ch-ch-ch- changes, with pop star David Bowie hoping to take advantage of structural innovation by securitising future royalties. A deal is under way which may provide the star with a total of US$50m up front, instead of letting the royalties flow in over the years.
Gruntal & Co will structure the asset-backed offering should Bowie approve going ahead. William Zysblat, Bowie's business manager, would only say that "this is one of the many options being considered." Structuring is reportedly only in the initial stages.
ABS specialists did not know quite what to make of the potential to securitise intellectual property. With no details of maturity or pricing out in the market, the focus turned logically to asset backing the deal.
Sources associated with the transaction feel historical data - which is typically used by ABS investors to analyse income streams on deals backed by anything from standard credit cards and mortgages to life insurance policies on terminally ill patients - has been very consistent and positive thus far.
"Bowie has sold in excess of 10m units per decade, which translates to one million units per year," a source associated with the transaction said, adding that the deal is expected to receive a Single A rating from one of the major rating agencies based on the historical data.
"The deal will be backed by royalties on a number of albums - all gold - which essentially means royalties from a couple hundred copy right songs are backing the issue," said one source familiar with the transaction.
"The record royalties have a minimum royalty guarantee, which is very predictable. The deal also is backed by royalties on the publishing side, and his historical publishing revenue has been on the rise." Publishing revenue includes proceeds from radio air play, sync usage in films and TV, and sheet music.
The source familiar with the issue also feels the deal offers more diversification than initially meets the eye. Although the royalties backing the issue come from one artist, the revenue stream comes from many different areas, the banker said. "Royalties do not come in one lump check. There are numerous individual income streams coming in from around the globe," he said.
JP Morgan stuck to the more traditional assets last week, pricing two global ABS issues. A US$436.2m floating-rate credit card issue for First USA offered yet further testimony to the significant depth of investor demand for floating-rate paper. The senior class of the 7.1-year average life deal was easily absorbed at 12bp over three- month Libor - another record for the sector.
"There was a tremendous amount of momentum on the deal at this level," said an official at JP Morgan. "The pot was over three times oversubscribed." The official added that the deal was distributed evenly between US and European investors.
JP Morgan also acted as lead manager for a US$271.5m issue for Chevy Chase. The majority of the Chevy deal was placed in the US, with States-side buyers soaking up approximately 75% of the transaction. Although the smaller size restricted liquidity, the issue still sold briskly with a spread of 14bp over three-month Libor for a seven-year average life.
New issue details are:
First USA Credit Card Master Trust Series 1996-8 Amount: US$436.2m
Class A Amount: US$400m Coupon: 12bp over three-month Libor Fees: 35bp Rating: Aaa (Moody's), AAA (S&P)
Class B Amount: US$36.2m Coupon: 34bp over three-month Libor Fees: 40bp Rating: A (Moody's), A2 (S&P)
Common terms Final maturity: 10 years (due August 2006) Average life: 7.1 years (due January 12, 2004) Issue price: 100.00 Listing: Luxembourg Denominations: US$1,000 Lead manager: JP Morgan Securities Co-lead managers: Salomon Brothers, NationsBanc
Chevy Chase Services II 1996-C Total amount: US$271.5m
Tranche A Amount: US$246m Coupon: 14bp over one-month Libor Fees: 30bp Rating: Aaa (Moody's) AAA (S&P)
Tranche B Amount: US$25.5m Coupon: 38bp over one-month Libor Fees: 35bp Rating: B (Moody's), A (S&P)
Common terms Final maturity: 11.5 years (due May 2007) Average life: Seven years (due December 15 2003) Governing law: US Selling restrictions: US Lead manager: JP Morgan Co-lead manager: Merrill Lynch
MLCC Mortgage Investors Inc 1996-D, Asset-Backed Pass- Through Certificates Amount: US$627.062m Maturity: February 2025 (legal final); average life 5.31years Spread: One month Libor plus 0.30% Issue price: 100.00 Payment: December 10 Call option: Amortises monthly Listing: None Commissions: Undisclosed Governing law: New York Denominations: 1,000 minimum and multiples Negative pledge: No Cross default: No Sales restrictions: Global Outstanding rating: Aaa (Moody's), AAA (S&P) Lead manager: Merrill Lynch (books)
COMMENT: An official at Merrill Lynch reported continued high demand for asset-backed securities, especially in floating format. Its own issue of Mortgage Loan Asset- Backed Pass-Through Certificates was heavily oversubscribed. Despite an increase to US$6627.062m from its original launch size of US$506.359m, allocations had to be cut back because of the strong investor response. As well as sales to the US, the issue was given a positive response from European investors, and interest in such products continue to fluctuate between the two regions. Continued supply of asset-backed securities is envisaged, though in a fairly orderly fashion, and next week should see the launch of floor plan transactions for Bombardier and Green Tree.