New ‘Bowie’ Bonds Bank on Royalties From Motown Trio

By ROSS A. SNELL

NEW YORK – Investors are pursuing the second issue of so-called Bowie bonds – but this time the securities don’t carry a record-company guarantee.

         This deal, which investment bankers said is close to being sold, is backed primarily by $30 million that investment bank Fahnestock & Co. made to the songwriting team of Edward Holland, Lamont Dozier and Brian Holland.  The three tunesmiths helped put Motown on the musical map by penning such tunes as “Stop! In The Name Of Love.”

         The flow of royalties from the songs will be used to pay interest and principal to investors who buy the bonds.  The attraction of the bonds to the songwriters is they get an upfront cash payment.

         Fahnestock, which placed $55 million of asset-backed securities for musician David Bowie last year, has been showing the Motown deal to rating agencies in the expectation of a single-A rating.  But unlike the Bowie Bonds – the only music-royalty securitization to date – the Motown deal isn’t guaranteed by any record company.  EMI Records guaranteed Mr. Bowie’s deal.

         The lack of guarantee also differentiates the Motown transaction from a $15.4 million securitized loan that British rocker Rod Stewart closed with Nomura Asset Capital recently, according to the Financial Times.  Mr. Stewart’s loan is expected to be bundled with others and securitized at some point in the future.

         Mr. Bowie’s bonds, which were sold entirely to Prudential Insurance Co. of America, were rated single-A-3 by Moody’s Investors Service Inc.

         But despite receiving widespread attention, the music-royalty-securitization market hasn’t lived up to the hype – at least not yet.  Mr. Bowie’s bond offering was just a sliver of the more than $200 billion in new asset-backed deals last year.

         Securitization professionals say it takes a long time to work out the structural details in the music-royalty securitizations.  Servicing the transaction can also be more complicated than plain-vanilla asset-backed deals such as credit cards, because servicers take an active role in making sure the music catalog produces an expected revenue stream.

THE WALL STREET JOURNAL April 29, 1998 – Page C24