Your favorite Green Day or Guns N’ Roses hit just might help buyers of a new asset-backed bond get paid.
Performing-rights organization SESAC is selling a US$560 million bond backed by assets like licensing agreements that let places such as bars, retailers or fitness centers play popular music. It’s the first such deal for the Blackstone Group Inc.-backed company, which counts Bob Dylan, Adele and Neil Diamond among its roughly 35,000 artists. When SESAC enters a licensing agreement, it collects and distributes royalty payments to artists.
The offering, which is being led by Guggenheim Securities, may price as soon as next week, according to a person familiar with the matter who is not authorized to speak publicly and asked not to be identified. Kroll Bond Rating Agency expects to rate the deal BBB-, the lowest investment-grade rank, while Morningstar Credit Ratings assigned it a preliminary BBB grade, which is one step higher.
The bond is being offered in two parts, a US$30 million variable-rate note and a US$530 million fixed-rate portion. Morningstar said in its pre-sale ratings report that it was encouraged by SESAC’s long history of revenue growth and ability to retain artists. It said it’s concerned by the company’s higher debt levels relative to cash flows and weaker growth in television and radio broadcasting rights as more consumers move to online streaming.
SESAC’s offering is known in the industry as a whole-business securitization, a type of bond that’s typically backed by restaurant franchise agreements or other unusual assets like Coinstar machines or data centers. Interest in the transactions has been growing in recent years because the bonds typically pay higher rates than more traditional asset-backed securities tied to consumer debt like auto loans or credit cards.
This isn’t the first time artists’ rights have been used to back debt obligations. David Bowie pioneered such deals in the late 1990s when he securitized royalty streams from his catalog of music in a model that was later replicated by musicians including James Brown and The Isley Brothers.
Blackstone paid US$1.125 billion to buy SESAC in 2017, according to the person. It’s the third-largest performing rights organization, behind nonprofits American Society of Composers Authors and Publishers and Broadcast Music Inc.