Bowie Bonds: A leap into future by a 20th century singer
David Bowie was a pop music icon to many, but he was also an icon in the world of finance. He had predicted the future of the music industry and came up with an innovative idea to have stable cash flows in the future, even when the entire music industry was seeing an economic slowdown.
Bowie had anticipated the future and securitised the future revenues of 25 of his music albums. Prudential Insurance Company had bought the entire issue, which paid an interest of 7.9% for a term of 10 years, whereas the US Treasury bond paid on 6.4% at that time.
This was the first ever securitisation which used revenues form music sale as underlying assets, and it was given AAA rating by Moody’s. The entire issue was sold for USD 55 million. But with the emergence of internet and its wider reach to people made the music industry economically less viable for investments and the ratings of the Bowie Bonds was revised to something just above junk for investment.
Bowie believed that the copyright would cease to exist in next 10 years, thus he came up with the idea to cash in on his royalties and also have decent sale of his recorded music in the future. Bowie was followed by other music artists like James Brown, Marvin Gaye’s estate, and other who used royalty backed bonds. Asset back bonds weren’t new Bowie issued his bond but future revenues from sale of recorded music was never used as assets to back securities.
Apart from these bonds Bowie had also ventured into innovative ideas like setting up his own internet service provider (Bowienet) in 1988 and opening an online bank (BowieBanc) in 2000.
While David Bowie has departed to heavenly abode, but the Bowie Bonds will remain a study for the securitisation industry for forever.
Reported by Ameet Roy
Dated 18th January, 2016