| Bowie: Misfire
London, March 28: It was billed as the innovative union of the stock exchange and rock ’’ roll.
The headline ‘Bowie sells himself on Wall Street’ signalled the unlikely marriage of the worlds of asset-backed securities with the glamour of showbusiness. Seven years on, a divorce is on the cards.
David Bowie made both music industry and corporate finance history in 1997 when investors paid £35 million for bonds paying a generous 7.9 per cent interest rate over 10 years backed by income from his back catalogue.
The financial device, known as a “securitisation”, more usual in the credit card and mortgage sectors, made him the first musician to issue bonds against his future income.
Now, however, the credit rating of the Bowie Bonds has been downgraded to only just above “junk status”.
Investors have been warned that Internet music piracy and the slump in record sales have reduced the credit-worthiness of the bonds.
A spokesman for Moody’s Investors Service, one of the big three credit rating agencies, said: “The downgrade was prompted by lower than expected revenues generated by the assets due to weakness in sales for recorded music.”
Bowie’s 1997 guise of corporate innovator was the latest for a performer who has constantly reinvented himself. Famous for hits such as Space Oddity and Changes and for his lead role in the film The Man Who Fell to Earth, Bowie’s issuing of bonds allowed him to raise revenue upfront instead of waiting for royalties to trickle in.
He was able to do this because, unlike most recording artists, he owned the rights to his songs. The bonds were all bought by American company Prudential Insurance.
Commentators spoke of a brave new world for artists who could free themselves from the shackles of the music industry. Bowie, now 57, and with a personal fortune of more than £100 million, was followed down the intellectual property bond route by other stars such as James Brown and the soul band the Isley Brothers.
However, Bowie’s stock waned and with sky-high video budgets and costly international promotional jaunts, his 1999 album Hours was a commercial failure.
Mark Bezant, head of the intellectual property group at accountants Deloitte, said the hopes of artists being able to raise funds by issuing bonds had been hit by the downloading of music from the Internet. “There was a lot of hope around intellectual property bonds at the time the Bowie Bonds were launched,” he said.
“With the Bowie Bonds, people’s expectations for the cash flows have been dented by the problems of digital downloading.”
David Pullman, whose company the Pullman Group organised the sale of the Bowie Bonds on the New York bond market, insisted that no one would lose money because of the downgrading of the investment rating.
He said: “The bonds have not defaulted and will not default. The value of the assets of David Bowie’s catalogue, publishing and recording masters are far in excess of the outstanding balance of the bonds.
“This type of deal was only ever appropriate for legends with big catalogues.”
A spokesman for the singer refused to comment.