New $415 million bond backed by music rights of performers including The Who, Tim McGraw

Bond investors will soon be able to buy a piece of the music catalogs of acts including The Who. PHOTO: THE WHO/FACEBOOK

NEW YORK (BLOOMBERG) - Bond investors will soon be able to buy a piece of the music catalogs of a wide range of pop, country and classic rock acts including The Who and Tim McGraw.

Private equity and credit firm Northleaf Capital is selling US$303.8 million (S$415 million) of asset-backed securities supported by publishing and sound recording rights of a total of 52,729 songs, as well as the income generated by the music, according to a presale report from Kroll Bond Rating Agency. The offering is being led by Guggenheim Securities, and Kroll expects to give the deal a grade of A, the sixth-highest rating.

This is not the first time music rights have been used to back debt obligations. David Bowie pioneered similar deals in the late 1990s when he securitised royalty streams from his catalog of music in a model that was later replicated by musicians including James Brown and The Isley Brothers.

More recently, bonds backed by recording artistes' performing rights have hit the market. Separately, a wide range of performers, from Bob Dylan to Shakira, have been selling all or some of the rights to their catalogs.

This comes amid a banner year for bankers bundling assets into bonds. They have sold securities backed by everything from fast-food franchises to fitness-centre fees, at the fastest clip since the global financial crisis as investors chase yield and inflation protection.

Northleaf originally started as TD Capital, a unit of TD Bank Financial Group, before becoming a management-owned firm in 2009. The catalog it is securitising boasts more than 200 No. 1 Billboard songs and more than 800 charted hits.

Another firm, Lyric Copyright Services, which is in the business of acquiring music royalty generating assets, has been administering and collecting money for the catalog for the last decade, and is also involved in the transaction. The full catalog is valued at US$467.4 million, Kroll said.

The proliferation of streaming will only help the performance of the bonds, Kroll analysts said. "Consumption is increasing at a subscriber level and the entire music industry is growing as the number of users increase as well as the frequency at which they stream."

While the catalog is not currently subject to any meaningful litigation, there are two outstanding infringement claims with respect to two songs, which has the potential of impacting cash flow in the future, Kroll said.

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