Bowie Bonds
Encyclopedia
Bowie Bonds are asset-backed securities
of current and future revenues of the 25 albums (287 songs) that David Bowie
recorded before 1990.
Issued in 1997, the bonds were bought for US$55 million by the Prudential Insurance Company
. The bonds paid an interest rate of 7.9% and had an average life of ten years, a higher rate of return than a 10-year Treasury note (at the time, 6.37%). Royalties
from the 25 albums generated the cash flow that secured the bonds' interest payments. Prudential also received guarantees from Bowie's label, EMI Records, which had recently signed a $30m deal with Bowie.
By forfeiting ten years worth of royalties, David Bowie was able to receive a payment of US$55 million up front. Bowie used this income to buy songs owned by his former manager. Bowie's combined catalog of albums covered by this agreement sold more than 1 million copies annually at the time of the agreement.
The Bowie Bond issuance was perhaps the first instance of intellectual property
rights securitization
. The securitization of the collections of other artists, such as James Brown
, Ashford & Simpson
and the Isley Brothers, later followed. These Bonds are named Pullman Bonds after David Pullman, the banker who pushed the original Bowie deal.
In March 2004, Moody's Investors Service lowered the bonds from an A3 rating (the seventh highest rating) to Baa3, one notch above junk status
. This downgrade was prompted by lower-than-expected revenue "due to weakness in sales for recorded music." A downgrade to an unnamed company that guarantees the issue was also cited as a reason for the downgrade.
The success of Apple's iTunes
and other legal online music retailers has led to a renewed interest in Bowie and Pullman Bonds.
Asset-backed security
An asset-backed security is a security whose value and income payments are derived from and collateralized by a specified pool of underlying assets. The pool of assets is typically a group of small and illiquid assets that are unable to be sold individually...
of current and future revenues of the 25 albums (287 songs) that David Bowie
David Bowie
David Bowie is an English musician, actor, record producer and arranger. A major figure for over four decades in the world of popular music, Bowie is widely regarded as an innovator, particularly for his work in the 1970s...
recorded before 1990.
Issued in 1997, the bonds were bought for US$55 million by the Prudential Insurance Company
Prudential plc
Prudential plc is a multinational financial services company headquartered in London, United Kingdom.Prudential's largest division is Prudential Corporation Asia, which has over 15 million customers across 13 Asian markets and is a top-three provider of life insurance in mainland China, Hong...
. The bonds paid an interest rate of 7.9% and had an average life of ten years, a higher rate of return than a 10-year Treasury note (at the time, 6.37%). Royalties
Royalties
Royalties are usage-based payments made by one party to another for the right to ongoing use of an asset, sometimes an intellectual property...
from the 25 albums generated the cash flow that secured the bonds' interest payments. Prudential also received guarantees from Bowie's label, EMI Records, which had recently signed a $30m deal with Bowie.
By forfeiting ten years worth of royalties, David Bowie was able to receive a payment of US$55 million up front. Bowie used this income to buy songs owned by his former manager. Bowie's combined catalog of albums covered by this agreement sold more than 1 million copies annually at the time of the agreement.
The Bowie Bond issuance was perhaps the first instance of intellectual property
Intellectual property
Intellectual property is a term referring to a number of distinct types of creations of the mind for which a set of exclusive rights are recognized—and the corresponding fields of law...
rights securitization
Securitization
Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or Collateralized mortgage obligation , to...
. The securitization of the collections of other artists, such as James Brown
James Brown
James Joseph Brown was an American singer, songwriter, musician, and recording artist. He is the originator of Funk and is recognized as a major figure in the 20th century popular music for both his vocals and dancing. He has been referred to as "The Godfather of Soul," "Mr...
, Ashford & Simpson
Ashford & Simpson
Nickolas Ashford , and Valerie Simpson , were a husband and wife songwriting/production team and recording artists....
and the Isley Brothers, later followed. These Bonds are named Pullman Bonds after David Pullman, the banker who pushed the original Bowie deal.
In March 2004, Moody's Investors Service lowered the bonds from an A3 rating (the seventh highest rating) to Baa3, one notch above junk status
High-yield debt
In finance, a high-yield bond is a bond that is rated below investment grade...
. This downgrade was prompted by lower-than-expected revenue "due to weakness in sales for recorded music." A downgrade to an unnamed company that guarantees the issue was also cited as a reason for the downgrade.
The success of Apple's iTunes
ITunes
iTunes is a media player computer program, used for playing, downloading, and organizing digital music and video files on desktop computers. It can also manage contents on iPod, iPhone, iPod Touch and iPad....
and other legal online music retailers has led to a renewed interest in Bowie and Pullman Bonds.
External links
- http://www.out-law.com/page-4393
- http://music.yahoo.com/read/news/12174412
- http://www.mirror.co.uk/news/top-stories/2009/01/12/david-bowie-s-back-catalogue-bonds-may-have-started-the-credit-crunch-115875-21036649/