Weekend Economists Mourn David Bowie 8 January 1947 – 10 January 2016 (1/15/16)

[Proserpina]

46. The Financial David Bowie--his view

Last edited Sat Jan 16, 2016, 01:40 PM - Edit history (1)

Bowie Bonds

Bowie Bonds, an early example of celebrity bonds, were asset-backed securities of current and future revenues of the 25 albums (287 songs) that Bowie recorded before 1990.

Bowie Bonds were pioneered by rock and roll investment banker David Pullman. Issued in 1997, the bonds were bought for US$55 million by the Prudential Insurance Company of America. The bonds paid an interest rate of 7.9% and had an average life of ten years, a higher rate of return than a 10-year Treasury note (at the time, 6.37%).

Royalties from the 25 albums generated the cash flow that secured the bonds' interest payments. Prudential also received guarantees from Bowie's label, EMI Records, which had recently signed a $30m deal with Bowie.

By forfeiting ten years worth of royalties, Bowie received a payment of US$55 million up front. Bowie used this income to buy songs owned by his former manager.

Bowie's combined catalogue of albums covered by this agreement sold more than 1 million copies annually at the time of the agreement. By March 2004, Moody's Investors Service lowered the bonds from an A3 rating (the seventh highest rating) to Baa3, one notch above junk status. The downgrade was prompted by lower-than-expected revenue "due to weakness in sales for recorded music" and that an unnamed company guaranteed the issue. Nonetheless, the bonds liquidated in 2007 as originally planned, without default, and the rights to the income from the songs reverted to Bowie.

BowieNet

In September 1998, Bowie launched his own Internet service provider, BowieNet, developed in conjunction with Robert Goodale and Ron Roy. Subscribers to the dial-up service were offered exclusive content, as well as a BowieNet email address and regular Internet access. The service was closed by 2006.