Have you heard of Bowie Bonds?

As well as being an innovator in the world of music, fashion and art, David Bowie was also associated with innovation in the world of Finance.

Music artists receive royalties for a long period of time after they have recorded their songs. Successful artists can become very rich by recording a hit tune once and having it replayed on air millions of times afterwards. Each airplay earns them a royalty payment.

In 1997, David Bowie joined forces with a banker called David Pullman. They ‘securitised’ the future royalties from Bowie’s music and sold bonds. The bonds had a life of 10 years and had an interest rate coupon of 7.9% per annum.

By doing this, Bowie received a big lump sum in one go rather than having to wait for smaller amounts to trickle in over a period of 10 years.
This financial product became known as a ‘Bowie Bond’ and was one of the first instances of using intellectual property as the underlying collateral for a securitisation.

The instruments were purchased by Prudential Insurance for $55 million, so Mr Bowie did rather well for himself. In effect, David Bowie gave up all future royalties from the albums that he had recorded up to 1990 for a period of 10 years from 1997 to 2007. The bond purchasers were happy to pay Bowie $55million as they expected at least that figure from the future royalties.

Bowie bonds are also known as “Pullman bonds” after David Pullman, the banker who created and sold the first Bowie bonds. Nowadays, we see many securitisations issued by other entities in the entertainment industry, where they are prepared to forgo future royalties for a lump sum now.