You may or may not be a David Bowie fan, but either way, you’ll probably be surprised by his contribution to finance.
In 1997, David Bowie was a wealthy man, but didn’t have enough cash to buy out the other 50 percent co-owner of the songs that he had written.
He was buddies with an investment banker who proposed a novel idea: sell bonds using his song library as collateral for the bonds – the future royalties on his 25 albums would ensure that he could make interest payments and pay back the principal after 10 years.
Ultimately, Bowie raised $55 million that he had to repay in 10-years along with 7.9 percent in interest. Moody’s rated the bond an A3, an upper level rating with low credit risk. That rate was about 1.5 percent more than 10-year Treasury bonds at the time.
Despite a downgrade by Moody’s to Baa3 (their lowest level of investment grade bonds) in 2004 on soft music sales, Bowie paid the bonds off at the maturity without missing any interest payments.
His success inspired other artists like the Isley Brothers and James Brown to issue bonds later on. It seems fortunate to me that he did this long before services like Spotify and Pandora put pressure on royalties.
The music and fashion industries will certainly miss Bowie, but I think everyone in finance ought to tip their hats to him as well. As a fan, I imagine him commencing countdown, engines on, checking ignition….