by Jay Mathews / The Seattle Times
7th February 1997
NEW YORK – David Bowie, the angular British rock star, has never been afraid to try something new. His stage persona has metamorphosed from Ziggy Stardust to Aladdin Sane to the Thin White Duke, with interesting digressions along the way. He had and he has performed with a succession of bands, from the Kon-rads to the King Bees, to the Lower Third, to Tin Machine.
Now Bowie is the first major artist to turn himself into a bond issue – payable over 10 years at 7.9 percent.
The asset-backed bond – the financial instrument that has put $55 million in Bowie’s well-tailored pocket – is a device of rapidly growing popularity that has already helped banks turn home-loan payments and credit-card receivables into big chunks of cash. But until now no one dared to think the annual income from former hits such as “Space Oddity” or “Let’s Dance” might appeal to gray-suited executives looking for stable bond investments.
The bond bonus for Bowie is $55 million immediately, instead of in installments as the records sell, and more money than record companies were offering. What he’ll do with the money is unclear, but he seems to have been drawn to the deal by its tax advantages.
Cut of income from 25 albums
The reliability of the revenue stream to pay off the bondholders enabled Bowie to get a triple-A rating from Moody’s and a favorable interest rate. His success could entice other artists with steady royalty payments to go to market, said David Pullman, the 34-year-old senior vice president at Fahnestock who designed the deal.
Many rock stars have outsold Bowie in the United States, but his avant-garde image and musical tastes still sell an average 1 million records a year all over the planet, according to his business manager, Bill Zysblat, co-founder of the New York-based Rascoff Zysblat Organization. There also is revenue from 250 songs turned into sheet music, commercials and background for elevators, voice mail and many other uses in an age where profit sources for art are expanding rapidly.
That predictable sales-track record was crucial to the bond deal, since the institutional investors were paying for a cut of the income from Bowie’s 25 pre-1993 albums and songs. Bowie is expected to sign a new $30 million record deal with EMI for future work not covered by the bonds.
Bond deal `terrified’ some
When Bowie decided to go with the bonds, “I was terrified,” said Zysblat, “and it isn’t over yet. The bonds have to be paid off.” But his fear that the privately offered securities might not attract enough interest eased when Pullman reported the financial equivalent of what Zysblat called “a line around the block.”
“It just goes to show you that anything can be securitized,” said Craig Moyer, senior fixed-income manager at Meridian Investment in Valley Forge, Pa., part of CoreStates Financial.
Asset-backed bonds began as a way to help banks turn slow-moving income sources such as credit-card and car-loan payments into big new cash sources that could be reinvested and turned into even more fees and income.
Moyer said Bowie’s $55 million deal would be too small to interest most investors because they would be uncertain of finding buyers if they decided to move their money elsewhere. But, he said, he could imagine some clients who would be drawn to the deal, with an interest rate significantly above the 6.4 percent now paid by 10-year Treasury bonds.
Although Bowie is one of the most financially savvy singers in the world, with a well-chosen art collection and a deep appreciation of market trends, the asset-backed bond market was still new to him. Zysblat said that when he first broached the subject with his client, “he kind of looked at me cross-eyed and said, `What?’ ”
Pullman’s Structured Asset Sales Group, until last month a division of Gruntal & Co., specializes in finding new kinds of assets to turn into bond deals. Pullman suggested the Bowie bonds to Zysblat a year ago, and their discussion grew serious last fall.
Unlike most singer-songwriters, Bowie had kept control of his copyrights and record masters, and the distribution license for his first 25 albums was due to expire in June. He could have signed a new deal, with a substantial advance, but Pullman said he thought he could get more money up front through a bond sale.
Zysblat agreed to see how big an advance the record companies were offering, while Pullman tested the feasibility of a bond sale. When they met again, Zysblat said, “his numbers were bigger than my numbers.”