North America ABS Issue: US$1.8bn Concord Music Royalties

IFR Awards 2022
3 min read
Richard Leong

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Concord Music struck the right chord with a US$1.8bn musical royalty securitisation, capping a year when this esoteric asset-backed sector reached a wider audience.

While a KKR venture and a Blackstone-backed fund also penned their first music ABS this year, Concord’s ABS debut, thanks to hefty backing from Apollo Global Management, was impressive in its size and timing. The jumbo offering landed in December at a time of dwindling liquidity and as funding markets remained jittery on fears of further increases in interest rates.

The three public music deals raised a combined US$2.75bn this year, compared with last year's lone US$303.8m offering from Northleaf Capital Partners.

Proceeds from the deal, which featured a US$150m variable rate funding note and a US$1.65bn fixed-rate class, will finance Concord’s acquisition of music rights. This part of the music business has attracted cash-flush private equity houses like Apollo, Blackstone, KKR and The Carlyle Group, which see growing profits from streaming services and licensing for television, films and advertisements.

“We look for opportunities to find attractive yields,” said Paul Sipio, a principal in Apollo’s Capital Solutions unit. “This catalogue generates predictable and stable cashflows.”

Concord's catalogue contains over one million copyrighted songs from chart-toppers such as REM, Genesis and Phil Collins.

Confident in the music portfolio, valued at US$4.1bn, Apollo stepped up to become the biggest investor in the offering, called Concord Music Royalties 2022-1.

“We anchored the deal and it helped to get the deal done in part because other third-party investors like the alignment. We are not just moving risk like a bank, we like the credit and want to invest on behalf of our own accounts,” Sipio said. Apollo declined to say how much of the Concord paper it owns.

Apollo was joined by insurers and institutional money managers. JP Morgan and Apollo Global Securities were the joint leads.

The 144A/Reg S offering, rated A+ by Kroll, drew ample orders and ended up being upsized from the original US$1.5bn. The deal's rating by Kroll and low leverage at 44% also attracted investors. The year’s other two music ABS were assigned A or A– ratings from Kroll, while their leverage was higher at 65%.

Concord priced the five-year, fixed-rate note at US Treasuries plus 340bp. This was wider than the 310bp on a slightly shorter-dated and lower-rated US$221.65m music issue from Blackstone-sponsored firm Hipgnosis in August. Before market ructions became a regular feature of 2022, Chord Music Partners, a KKR-backed joint venture, placed a US$732.6m five-year Single A rate music ABS at a spread of 210bp in February.

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