David Bowie was known for his ability to reinvent himself. But he also helped inspire a pocket of Wall Street that tries to create money out of weird things like billboard rental income, cellphone tower lease payments and literary or film libraries.
In 1997, Mr. Bowie bundled up nearly 300 of his existing recordings and copyrights into a $55 million security that paid the buyer — Prudential Insurance Company of America — a 7.9 percent annual rate over 10 years, backed by the income from his royalties and record sales, and the licensing of his songs for films or other uses.
The so-called Bowie bonds were among the first in what would become a wave of esoteric asset-backed securities deals based on intellectual property, including a more recent one involving Miramax’s film library(including titles like “Pulp Fiction” and “The English Patient”). Bankers have also come up with securities backed by franchise revenue for the restaurant chains Sonic and Church’s Chicken, among others.
The buyers in these deals, which are negotiated privately by the banks that put the transactions together, tend to be specialized hedge funds or big institutions that can negotiate terms with the bankers. Individual investors never got their hands on a Bowie bond because Prudential never sold any of its stake.
A Prudential spokesman declined to comment.
At the time it was a good deal for Mr. Bowie. He got upfront cash for a decade’s worth of royalty and licensing revenue without having to give up ownership of his songs.
Originally rated A3 by Moody’s Investors Service, Bowie bonds were later downgraded to Baa3, just above junk status. By the early 2000s, Internet file sharing had become a factor, and musicians were generating less income because album sales were declining.
Still, Mr. Bowie’s Wall Street collaboration inspired other celebrities to cash in while the getting was still good. Edward Holland, Brian Holland and Lamont Dozier, the Motown hit songwriters, did a deal, as did James Brown and Rod Stewart. In 2002, DreamWorks SKG entered into a $1 billion deal involving its film catalog.
Most asset-backed securities are secured by income generated from mortgages, credit card loans and auto loans. But mortgage-backed securities gave the sector a bad name during the financial crisis and investors backed off for a while.
Issuance of asset-backed securities dropped 16.6 percent last year, to $184 billion, with a steep drop off in deals backed by credit card loans, according to the Securities Industry and Financial Markets Association.
Deals backed by unusual assets make up about a tenth of the asset-backed security market, appealing to investors who want higher yields and are willing to take on more risk.
“There’s a nonanalytic aspect to these deals that makes them riskier,” says Sylvain Raynes, a founder of R&R Consulting who worked at Moody’s at the time the Bowie bond was being rated.