Chord Music Partners found solid investor demand last week for a US$732.55m debut securitization that finances its US$1.1bn acquisition of music publishing rights from Kobalt Capital last October.
The venture between private equity house KKR and Dundee Partners on Friday priced the single-tranche, Hi-Fi Music IP Issue II 2022-1, marking a rare public securitization of entertainment assets. Dundee Partners is the family office of former Goldman Sachs partner Stephen Hendel.
The deal is backed by royalties from more than 62,000 copyrights on songs from a diverse roster of veteran and current performers and songwriters such as The Weeknd, Childish Gambino and Stevie Nicks. Roughly 80% of the revenues are expected to come from music publishing and the rest from recorded music. Cashflow will also come from recouping artist advances.
The offering was around 1.5x-2.0x oversubscribed, a buyside source said.
The note, which had a weighted-average life of 4.96 years and an A rating from Kroll, came in 210bp over swaps, which was inside its guidance of 215bp-225bp. It will pay interest on a quarterly basis and is not scheduled to pay down its principal before February 2027.
Credit Suisse and KKR's broker-dealer unit KKR Capital Markets were the joint structurers and bookrunners.
KKR declined to comment on the transaction.
The mid-investment grade transaction drew orders from fund managers seeking to diversify from unsecured credit and more traditional consumer assets such as auto loans and credit cards, a senior portfolio manager said. A few ABS investors did express reservation about music royalty securitizations because of the idiosyncratic risks around changing musical tastes and technology.
Music labels and private equity firms have turned to the debt market to finance their acquisitions of music rights in an effort to profit from the growth in streaming services and licensing for ads and other commercial services. Last November, Warner Music raised US$535m in the high-yield bond market for its purchase of iconic singer David Bowie's entire back catalogue.
Private equity firms such as KKR have entered into the music space by partnering up with specialty shops like Kobalt. PE firms could enhance the returns on their investments by levering them through the bond market, while owners of music rights firms can pocket money from the sales of their music holdings and earn steady administrative fees from these partnerships, market participants said.
In October 2021, just one week before the KKR-Kobalt deal emerged, Blackstone announced plans to invest US$1bn to acquire music rights through a partnership with UK advisory firm Hipgnosis Song Management.
"I think it's quite natural for some of these songbooks to end up in the hands of alternative investors and they lever them up in the securitization market. I expect to see more of these deals," the first buyside source said.