[This page is a series of focused write-ups on applications in securitisation. For other applications, see the Securitisation Applications section on the Securitisation home page.]
More on Intellectual property securtization
Late breaking additions:
Updated 1st March 2002
Added 29th August, 2000:
David Pullman is not the inventor of Bowie Bonds, holds court – see news report here
Intellectual property revenues securitisation market:
Here is one of the latest applications of securitisation: music and cinema revenues. David Pullman, a New York-based financier is considered to be the pioneer of music royalty-backed securitization.
Activity in this field sounds extremely interesting. One of the European companies recently securities the revenues from screening of James Bond movies to which it holds title, and these bonds were named the Bond Bonds.
Another source of funding, common in the music industry, is to borrow capital for marketing – for making videos, offering free concerts and paying for other expenses associated with promoting a band – from a major record label in return for a percentage of future revenues. Giving independent labels access to other sources of capital is potentially a big blow to leading players like EMI, Sony and Polygram.
In a recent article titled "Wall Street can securitise anything", Kim Clark commented: "Financiers have shown remarkable ingenuity over the past decade in finding new and unusual things to turn into tradable securities. Home mortgages, car loans, and lottery winnings are just a few of the streams of income that have been "securitized" and peddled on Wall Street. The latest innovation in this usually arcane field even made it onto the nightly news: the $55 million of what will forever be known as "Bowie bonds"–securities backed by revenues from future sales of David Bowie's early albums. The rock star's highly publicized bonds are only a tiny part of a $150-billion-a-year-and-growing market of investments with the deceptively boring name of asset-backed securities, but they reveal how prevalent the practice of securitizing cash flow has become. The fact that Wall Street is getting into deals that, say, securitize the weird oeuvre of a weird rock star shows that "securitization is going to change the world"."
An Italian company made an innovative use of securitisation in March 1999 when it issued (for the first time in the World perhaps) bonds secured by revenues from several movies owned by it, including several James Bond movies. That is why these bonds were called Bond Bonds. The following news report is based on Lawmoney:
The issue was made by Italian film producer the Cecchi Gori, largest film producer in Italy. The size was L500 billion (US$280 million). The bonds were backed by revenues from cinema and video sales, as well as licensing films to television companies. Cecchi Gori owns the rights to more than 1,000 Italian and international films, including most of the James Bond movies.
Music industry and securitisation:
After David Bowie's securitisation, there have been several issues of securities based on receivables from music tapes.
Iron Lady's music receivables have been securitised. The securitisation news page on our website carries news about such securitisation transactions – for example, Scorpion, Ron Isley, etc – click here to access the news page.
In 1993, US fashion company Calvin Klein raised US$58 million with the securitization of royalties on perfume brands, arising from the exclusive right to use the Calvin Klein trade mark on existing and future products.
Chrysalis deal in UK:
In March 2001, Royal Bank of Scotland structured a deal for Chrysalis PLC UK which was labelled as the first deal from an international music publisher. This GBP 60 million deal was funded by MUSIC Finance Corp and the collateral was the Chyrsalis Group’s International music catalogue and the revenues derived from the Catalogue – the Net Publishers Share (NPS) – via the US Commercial Paper market.
The total facility of GBP 60 million represents some 40% of the estimated current value of the catalogue and is non-recourse to the rest of the Chrysalis Group. In addition to unlocking the inherent value in the catalogue, the transaction allows Chrysalis to maintain control over the administration and management of its various music-publishing subsidiaries. Like for most other UK transactions, the transaction uses a loan structure and not a true sale structure.
The 15-year transaction includes a three-year revolving period followed by a 12-year amortisation period to a substantial residual amount. The effective interest rate after amortising all fees and costs compared favourably to the Group’s then-prevailing cost of borrowing.
For more on music royalty securitisation:
Read a Duff and Phelps Credit Report on music royalty securitisation – this is a PDF file: clicking on the next link will activate Acrobat Reader, if you have one. If you do not, you can download the reader from several sites on the Net. Click here.