ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Saturday, February 15, 1997 TAG: 9702170087
SECTION: BUSINESS PAGE: A-5 EDITION: METRO
DATELINE: NEW YORK
SOURCE: ANDREW FRASER THE ASSOCIATED PRESS
THE INNOVATION IS TIED to future royalties from his old songs, which are a safe bet, analysts say. If it works, other stars could reap windfalls.
David Bowie, the chameleon of rock 'n' roll who has taken many gambles in reinventing his career over three decades, has passed his risks onto Wall Street.
The British icon, whose stage persona has transformed from Ziggy Stardust to Thin White Duke, is marketing bonds that will pay interest from royalties on some of his old songs.
The bonds are creative for both the investment world and the entertainment industry. They allow Bowie to collect $55 million up front instead of waiting for the royalty checks to trickle in over many years.
No one has ever before tried to entice investors with esoteric bonds tied to royalties from a singer's former hits. But Prudential Insurance Co. of America - the staid insurer - loosened its tie and snapped up all the bonds.
They provide Prudential with a 7.9 percent return on its investment over 10 years - an even higher return than the 6.37 percent yield on the new 10-year Treasury note. The insurer said the risks were minimal.
Bowie has opened what is envisioned as a new market for so-called asset-backed bonds, which derive value from payments on such things as home mortgages or car loans. In this case, the asset is Bowie's songs.
If Bowie succeeds, other entertainers are likely to raise money the same way. The deal already has generated much excitement. Could Frank Sinatra or Michael Jackson bonds follow? Or maybe Stephen King and Oprah Winfrey notes?
Bowie has only said the creation of the bond was a business decision. But his business manager, Bill Zysblat, said in an interview that the potential for many entertainers is enormous. Zysblat represents other stars, such as the Rolling Stones, Paul Simon and the estates of Ira and George Gershwin.
Zysblat denied a report that the Stones and Mick Jagger were talking about issuing a bond linked to royalties from some of the group's past hits.
But he and Dick Rudder, a partner at the law firm of Willkie Farr & Gallagher, who helped put together the Bowie deal, said they have fielded numerous inquires from people in the entertainment and investment communities.
``It's all new but hardly a surprise,'' said James Kendrick, an intellectual-property lawyer at Thacher Proffitt & Wood, a New York law firm. ``We will see quite a bit of this down the road.''
Investors have become hungrier for asset-backed bonds since they were created in the 1980s. Sales have grown from $1.2 billion in 1985 to more than $150 billion last year, partly because they offer competitive returns and generous protections.
The Bowie bond is tied to royalties from 25 albums, such as ``The Rise and Fall of Ziggy Stardust and The Spiders from Mars,'' that the 50-year-old rocker recorded before 1990. Current and future works are excluded.
``This was a very good deal offering a superior return compared to the risk,'' said Rick Matthews, a spokesman for Prudential. ``And because it was the first, you're going to get a higher rate than the next.''
Prudential also was encouraged by the bond's A3 investment grade rating by Moody's Investors Service - the highest - and reported guarantees against default from EMI Records, which recently signed Bowie to a $30 million deal to market his records.
``It's about time that artists are able to use some of the interesting Wall Street techniques to their benefit,'' Zysblat said. ``The music industry always seems to be a foot behind in creative financing. Hopefully, this will open the door.''
Bowie has amassed a $100 million fortune over three decades, so he is not exactly starving for cash. His latest album, ``Earthling,'' was released in the United States this week and already tops European charts.
His music includes hits such as ``Let's Dance'' in 1983 and continues to generate strong sales.
The albums tied to the bond sell more than 1 million copies annually. But pointing to his declining popularity, SoundScan Inc., which tracks record sales, said Bowie's U.S. sales fell to about 200,000 last year from 338,000 in 1995.
Even so, experts say, the bonds would still be a sound investment because they are not tied to the rise and fall of Bowie's career, and because his past albums still generate a steady, predictable stream of royalties.
Besides his long-term appeal, Bowie also was in a unique position that made the transaction possible. He controlled the rights to his songs - something many other singers would need and don't have.
Asset-backed bonds are an offshoot of asset-backed mortgages, which were developed by U.S. regional banks in the 1970s to help insulate them from a downturn in local housing markets. Because these banks did not operate nationally, they could not offset losses in one region with profits from more prosperous areas. Asset-backed mortgages enabled them to spread those risks.
That idea was later extended to car and student loans, tax liens and other exotic creations such as bonds tied to taxicab medallions and international telephone calls.
The area is dominated by credit card debt, home equity loans, and auto loans and equipment leases. Esoteric creations such as the Bowie bonds account for less than 15 percent.
LENGTH: Medium: 99 lines ILLUSTRATION: PHOTO: David Bowie and Prudential Insurance are an unlikelyby CNBpairing, but the insurer bought the entire issue of Bowie bonds.
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