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Bring It On Home To Me

Lately, I’ve been reading an awful lot about bonds backed by the royalties from rock’n’ roll records. The whole thing …

Lately, I’ve been reading an awful lot about bonds backed by the royalties from rock’n’ roll records. The whole thing started about a year ago when Fahnestock & Co. raised $55 million for aging rocker David Bowie by issuing 10-year notes yielding 7.9 percent, backed by downstream royalties from the sales of Bowie‘s first 25 albums. Shortly after that, word got out that the Jurassic rockers Crosby, Stills & Nash were looking into a similar deal. Most recently, the Wall Street Journal reported on “rumors” that Noruma Asset Capital was contemplating a major deal involving perennial favorite Rod Stewart.

To date, the rockers identified as suitable investment risks have been superstars whose big hits are far behind them but whose extensive catalogs continue to sell well. Although this select group is ample, it is by no means enormous, which means that once the Led Zeppelin, Rolling Stones, The Who, Pink Floyd, Creedence Clearwater Revival, The Doors, and perhaps a dozen or so other catalogs have been securitized, the pickings will start to get thin.

Yet, in some sense, this would seem to present an exciting investment opportunity for the prescient opportunist. Just as legendary investors George Soros and Jimmy Rogers made their fortunes by investing in underdeveloped nations before the hoi polloi got into it, fortunes could conceivably be made through judicious investments in some of the lesser-known rock groups whose catalogs may yet have a bit of life in them.

One bond offering I would like to see is a One-Hit Wonder Fund, whereby investors would be promised a 9.7 percent return on their money via the royalties from the sale of records issued by such mid-’60s flashes-in-the-pan as the New Vaudeville Band, whose sole claim to fame is “Winchester Cathedral”; the Syndicate of Sound, whose solitary commercial success was the catchy “Little Girl”; and ? and the Mysterian, whose 15 minutes of fame began and ended with the hypnotically dumb “96 Tears.” Although none of these bands has a back catalog large enough to warrant a huge bond offering, the ongoing revenues from the sale of these individual hits could be sufficient to warrant something in the $25-to-$50 million range.

Another offering guaranteed to generate its own hype would be the Dearly Departed 2028s, a 30-year offering backed by the royalties from the sales of rock stars who died too young. With a catalog including everyone from Buddy Holly and the Big Bopper to Jim Morrison, Jim Croce, Jimi Hendrix, and various other people named Jimmy, this bond offering could fetch somewhere around $90 million, provided the coupon was sufficiently high. After all, the rock stars were.

Yet it would be a great mistake for the bankers issuing such securities to limit themselves to the catalogs of rock stars. Senior citizens control a vast portion of the nation’s wealth and are probably more interested in current income than in capital appreciation at this stage in their lives. Might they not therefore find the Steve & Edie 2009s an irresistible offering, especially if the yield was somewhere north of 9 percent? For similar reasons, the Lawrence Welk or Guy Lombardo catalogs could generate substantial revenue a few years down the road-not to mention the Ferrante & Teicher 1 5-year notes or the Liberaces that will come due in the year 2050.

Perhaps the area with the greatest potential is the securitization of hybrid record catalogs. Just as investment bankers have packaged huge baskets of credit card debt, bank loans, and mortgage obligations-some of high quality, some of lower pedigree-an enterprising underwriter might put together an lucrative offering combining the catalogs of high-profile, low-risk musical performers with assorted acts of dubious merit.

Thus the back catalog of the Supremes and Tony Bennett could be combined with that of the Cowsilles and the Electric Prunes to construct an intriguing bond portfolio. Or a bond offering could be cut up into a series of tranches, the first tranche consisting of the royalties from several major Motown acts, the second consisting of royalties from the sale of reissued Perry Como albums, and the third consisting of royalties from novelty songs such as “Ahab the Arab,” “The Streaker,” or “Convoy.”

One potential problem in all this is finding bond rating services with the expertise to evaluate such exotic securities. It’s easy to find people who can tell you what position Adam Ant occupies in the pantheon of rock music, and it’s easy to find people who can explain what a reverse CMO is. But it isn’t easy to find people who can do both.

Ultimately, the best way may be to hire aging rock stars with an aptitude for math who would like to get off the road. I can think of no greater paean to the capitalist system than the moment a lead guitarist retires from a band with a name like Surgical Reptiles or Trixie Loathes Ginseng to take a job at Moody’s. In fact, it’s a moment I’m really looking forward to.

Joe Queenan is a regular contributor on business issues, corporate culture, and financial follies to Barron’s and The Wall Street Journal.

About Joe Queenan

Joe Queenan is a regular contributor on business issues, corporate culture, and financial follies to Barron's and The Wall Street Journal.