How insurance secured Bowie’s legacy
Tributes to the creative genius of David Bowie, who died this week aged 69, have been flowing from the worlds of music, fashion, art, cinema, and business too.
The singer was the first to use intellectual property rights as collateral in 1997 when, along with ‘rock-n-roll’ banker David Pullman he invented Bowie bonds.
For the 10-year life span of the bonds, Bowie forfeited royalties on hit records such as Ziggy Stardust and Let’s Dance, in order to get a large sum of money more quickly.
Back then, securitisation was limited to standard assets such as mortgages and car loans, but after meeting Pullman the singer decided to securitise future revenues from his catalogue.
Bowie sold his future revenues from 287 songs to Prudential Insurance, offering 7.9% interest (1.53 percentage points higher than 10-year US Treasurys paid at the time) on the NZ$70 million he received.
He timed the issuing of the bonds to coincide with a deal allowing EMI to re-release his back catalogue from the years 1969-1990.
He used the proceeds from the sale to purchase old recordings of his music from a former manager.
As internet piracy took hold, industry revenues eventually plummeted, and the Bowie bonds were downgraded by Moody’s from A3 to Baa3, but Prudential held on to them until redemption.
Bowie didn’t lose the rights to any of his songs, so the insurance company was likely paid in full from the revenues of the special purpose company that held the rights to the catalogue for 10 years.
Both Bowie and his investor did well out of the deal.
Collated from sources: Bloomberg View, Daily Mail