With More Municipalities Going Bankrupt, Innovative Bond Issues Are Becoming More Popular

Wednesday, August 08, 2012 07:33
With More Municipalities Going Bankrupt, Innovative Bond Issues Are Becoming More Popular

Tags: bonds | investing | US investing

When one kind of bond gets undercut by municipal bankruptcies, another kind of bond gets created. Bob Dylan’s music is behind this bond. It’s a bond being backed by the cut a Nashville, TN company receives from being the middleman between music companies and songwriters and broadcasting outlets.

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A $300 million offering is being marketed to institutions and wealthy clients. The company backing the bonds holds exclusive rights to the music of several popular Boomer artists including Bob Dylan, Neil Diamond, Cassandra Wilson, and Rush (a Canadian rock band).
Goldman Sachs is marketing the bonds and are trying to sell the five-year maturities at a 5.25% yield. This is an attractive yield for investors looking for higher income. The bonds carry a BBB rating from S&P, just above a junk rating.
The offering could be completed by early next week. Goldman is also working with the company issuing the bonds, Sesac, Inc., on a possible merger deal. About one third of the sale would be reserved for debt service on the bonds with the balance to refinance existing debt.
Over the past two years, bonds issued on collateral ranging from cell phone towers to leases on future timber sales have become more popular. But the 1990s are when such unusual bonds first began to be issued. Bowie Bonds were sold in 1997 and backed by 10 years’ worth of royalties he expected to receive between on albums he recorded before 1990.
Even pizza companies and movie companies are getting in on the bond issuing act. Domino’s Pizza recently sold $1.575 billion in bonds backed by franchise revenue. Miramax sold a bond offering worth $550 million on licensing and distribution revenue on films like Pulp Fiction and Good Will Hunting.
Times definitely are changing, in keeping with one of Mr. Dylan’s songs. When things get tough, people become more innovative.

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