Official Blog – Cleantech, Investments, Bonds

David Pullman, the architect of the much-publicized 1997 “Bowie Bonds” $55 million debt issue, closed a deal with the estate of Marvin Gaye to put together a similar deal backed by royalties from the legendary R&B singer’s recordings. In September 2000 the Pullman Group arranged a bond issue for the estate of Marvin Gaye, whose musical legacy includes “What’s Going On”, “I Heard It Through The Grapevine”, and “Sexual Healing”. The musician’s widow and children shared the profits from the sale of the bonds.

David Pullman, Founder and Chairman of the Pullman Group, (R) LLC, states “Marvin Gaye is pure genius. Because of the deals I do for artists, people always ask me what I listen to. I can tell you I can listen to Marvin Gaye’s music over and over again. This deal is very special to me–especially the songs that weren’t hits are some of my favorites. Marvin Gaye defines what a great album is. It is the albums that are great, not just the hit songs. That is why the Marvin Gaye catalogue sells millions of records per year, year in and year out. I am very excited about working with Marvin Gaye’s wonderful family, Marvin Gaye III, Jan Gaye (mother of Nona and Frankie Gaye), Nona Gaye and Frankie Gaye and their attorney Gary Walters on this deal. Marvin Gaye blazed a trail which not only redefined soul music as a creative force but also created a body of work that is being re-recorded and enjoyed by generation after generation.”

“A few years ago I read an article about what The Pullman Group was doing and wondered if Marvin’s catalogue would be a good one to set up a deal for. Not long after that, we got a phone call that David wanted to meet with the Gaye family,” states Jan Gaye, wife of Marvin Gaye. “Marvin’s catalogue is perfect for a Pullman Bond (TM) securitization. His music is timeless and, generation to generation, kids still learn about Marvin Gaye’s music. It will go on forever.”

Marvin Gaye is credited with reinventing soul music, and his influence and impact started in the early sixties with two R&B smash hits, “Hitch Hike” and “Can I Get A Witness,” classics that were covered two years later by the Rolling Stones. “Dancin’ In The Street,” co-written by Marvin and William Stevenson, was sung by Martha and the Vandellas and hit No. 2 in the U.S. Then, from 1964 to 1967, Marvin became known as the master of make believe with songs like “Ain’t No Mountain High Enough,” “Your Precious Love,” “If I Could Build My Whole World Around You,” “You’re All I Need To Get By.” The biggest hit of the 60′s, “I Heard It Through The Grapevine” recorded and released song by Gladys Knight and The Pips stayed at No. 1 in the US for seven weeks in 1968 as well as reaching No. 1 in England. In the late 60′s, Marvin Gaye created his final work for Motown “What’s Going On,” which is credited for reinventing soul music and reinforcing black music’s impact on social issues. In 1984, Marvin Gaye died tragically, leaving behind one of most unforgettable music legacies in history.

Marvin Gaye has created a musical legacy of over $100 million in music entertainment assets.

A Pullman Bond (TM) music royalty securitization is a financing of artist and publishing royalties, which allows the original owner to keep 100% ownership of the assets that are financed. A securitization is not a sale of such assets and therefore is not a taxable event. The Pullman Group (R) developed these deals to empower artists and creators of entertainment and intellectual property.

The asset-backed securitization deals of David Pullman include the famous $55 million Bowie Bonds (TM) transaction, the $30 million deal with Holland Dozier Holland (Motown Hit Machine), an eight figure deal with R&B greats Ashford & Simpson, a $30 million deal with “Godfather of Soul” James Brown and another eight figure deal for the Isley Brothers. The Pullman Group’s experience includes well over $1 billion in transactions through 1998.

It has now been more than ten years since the introduction of the so-called Bowie bonds – regarded as the first ever music royalties future receivable securitisation – which gave rise to IP securitisation as a financing vehicle. In the years since the introduction of the Bowie bonds, a great deal has been written in the business and legal press and in academic journals about securitizing various IP portfolios from copyrights (particularly those associated with music and film) and patents (particularly those associated with pharmaceuticals and high technology) to trademarks and even trade secrets and domain names.

Bowie bonds were one of the first bond issued collateralized by intellectual property. Bowie bonds are asset-backed securities. These bonds are now referred to as Pullman bonds, because David Pullman was the banker that was in charge of setting up the David Bowie bonds. David Pullman convinced Bowie to forfeit his rights to all royalties for a 10-year period. Pullman then used those royalties to create the funding for the bonds. Bowie bonds are a type of bond that were created based on the rights to the albums that David Bowie made before 1990. These bonds were utilized in order to provide David Bowie with a cash payment in return for the rights to his albums.

Bowie bonds were originally issued in 1997 in a deal with the Prudential Insurance Company. The insurance company gave David Bowie an upfront payment of $55 million in return for the rights to the 25 albums that he owned prior to 1990. In a debt offering of this kind, the underlying copyrights would be used to secure the bonds. If the special-purpose vehicle (SPV) defaults on its payment obligations to bondholders, the copyrights are permanently transferred to the bondholders. Until the event of default, of course, the copyright owner would retain the copyrights subject to a security interest held by the bondholders. After the bond obligations are met, the copyright owner holds the copyrights free of the security interest (just as a homeowner that has paid mortgage debt in full owns a home free of the mortgage).The bonds provided the insurance company with a rate of return of 7.9 percent.

Bowie reportedly had a regular cash flow of more than US$1 million per year from ownership rights in the copyrights in much of his music catalogue dating back to the 1960s and to the recording masters. So rather than entering into a new traditional distribution agreement at the expiration of his existing recording and distribution agreement, Pullman devised the Bowie bonds to meet Bowie’s need for upfront cash.

Only limited information about the structure of the transaction is publicly available. The assets Bowie sold to the SPV included the right to certain future royalty payments from 25 pre-1990 albums he recorded (more than 300 copyrights). The SPV issued bonds and Bowie’s record distributor, EMI, provided certain credit enhancements. The bonds received a triple A investment grade rating by Moody’s Investors Services.

The Bowie bonds are not the only example of IP securitisation. In the years since the Bowie Bonds were first introduced, similar bonds backed by the royalties of musicians such as James Brown and the Isley Brothers have also appeared. These bonds have also remained in the institutional market.There also have been securitisations involving film catalogues as well. At least one securitisation involving patents for drugs has been done and publicised. Indeed, quite a few published articles have theorised that the possibilities for securitisations include portfolios of trade secrets, trademarks and domain names as well. However, if there have been such transactions, they have been kept fairly confidential and private.

When considering the intangible nature of intellectual property, perhaps it is not surprising that securitisations in this field have not become everyday, well-publicised transactions. Each type of intellectual property comes with its own peculiar set of complexities and unknown risks that are not common to commercial ventures involving tangible property.