Theoretically you can securitise any cash flow. Banks have securitised mortgages, credit card debts, and student loans. Perhaps less well known is the singer songwriter David Bowie securitised his music in 1997.
How did this work? David Bowie used the future revenue streams of his back music catalogue, future album sales and even live shows as collateral to issue a ‘Bowie Bond’. He raised $55 Million on issuance of the bond and used the funds to buy the rights to some of his music from his former manager – this had the effect of creating even more royalties for bond holders to enjoy. Bowie had securitised the royalties from his music to construct the bonds, giving up the royalties enabled him to enjoy revenue immediately as a lump sum (from the sale of bonds) rather than having to wait for revenue to flow in over time. This is an example of the ‘time shifting’ effect you can create in finance.
The bonds had a 10 year duration and issue price of $1000 with coupon of 7.9%. They were awarded a credit rating (by Moodys) as Bowie was seen as a low default risk. They were very popular, not only because of the return, but also because investors wanted to own a bit of rock history.
David Pullman, the banker that created the Bowie Bond, went on to construct similar bonds for other musicians. However, the growth of the online streaming of music saw the value of the bonds decline and their credit rating was reduced to Baa3 (just above ‘junk’ status) and on maturity in 2007, the royalties reverted back to David Bowie.
Mr Bowie did well as he gained immediate cash from investors, while they gave up liquidity and took the risk. Mr Bowie was not only a fine musician, but also a shrewd businessman!