Bowie Bonds began in 1997 as a stock of $55 million in $1,000-denominated bonds, underwritten by Pullman's firm, Fahnestock & Co. In order to get the deal off the ground, Pullman had the bonds rated by the three credit agencies at the time, Moody’s, Standard & Poor’s and Fitch.
Bowie was, thanks to Pullman, soon joined by bonds tied to James Brown, the Isley Brothers, Ashford & Simpson, and the Holland-Dozier-Holland publishing catalogs, underwritten by a firm Pullman started for the venture. Bowie’s, however, appears to be the only one that included master recordings.
“Bowie was savvy from the beginning -- his first recording deal recaptured his masters,” according to Pullman. “When he signed his recording deal, he took less up front and negotiated to get his masters back. What young artist was doing that back then? He was betting that his albums were assets that would be worth more later.”
That foresight was likely the work of Bowie’s then-new manager Tony DeFries, who likely had crossed paths with fellow manager Allen Klein. In the mid-'60s Klein began structuring deals for artists like Sam Cooke and producers like Mickey Most to own their master recording catalogs, turning around and licensing them to record labels for release and distribution.
At the time of the Bowie Bonds deal Bowie had just recaptured his RCA masters from Ryko in the U.S., which the artist had licensed to the label in 1989. Bowie was entertaining offers to sell his record masters and the portion of his publishing catalog he owned when Pullman entered the picture, selling Bowie and his business manager Bill Zysblat on the innovative investment vehicle.
“Bowie’s assets were worth more than $100 million at the time -- he had offers of that amount on the table from companies [interested in] his catalogs,” Pullman says. Instead Pullman issued the securities, which carried a 7.9 percent interest rate, fully maturing in 15 years. The bonds were all acquired by an investment division of Prudential, and were paid off in twice annual installments during that period.
Concurrently, Bowie used some of the proceeds from that $55 million sale to buy out his (now former) manager Tony Defries’ share in his RCA masters.
Prior to issuing his bonds Bowie had licensed his catalog to EMI for a 15-year deal, bringing him $30 million, according to Pullman. This EMI deal was used as “credit enhancement” to the income stream from the assets used to finance the deal, he says.
While the Bowie Bonds were credited at the time with allowing fans to own a piece of their favorite rock stars, bringing together Wall Street financing techniques and rock and roll music has a long, if sporadic, history.
Pickwick Records, founded by Cy Leslie, was one of the first publicly-traded music companies, going public in October 1961. During the '60s, '70s and '80s, other companies involved in the record business -- including Trans World Entertainment, a record store chain, and the Handleman Co., a record rack-jobber servicing music to such chains as Kmart and Walmart -- went public. By the '90s publicly-traded stocks included such companies as the Musicland Group retail chain and wholesaler Navarre, while chains like Tower Records and Wherehouse Entertainment were issuing publicly-traded bonds. Meanwhile, the major record labels at the time -- EMI, the Warner Music Group, Sony and MCA -- were parts of bigger publicly-traded parent companies, respectively Thorn-EMI, Time Warner, Sony Corp., and Matsushita Electric, now known as Panasonic.
The Bowie bond deals grew out of institutional investors' appetite for film investments, put together by firms like Silver Screen Partners in the '80s, which made what were essentially low-interest loans to production studios. “Off-balance sheet funding wasn’t uncommon in the entertainment industry,” says one investor with a long history of structuring entertainment deals. "The difference is that those deals didn’t make it into the common language until Bowie put his name to that deal.”
Before Bowie, the first company to try and trade on the stock market on the reputations of rockstars was a small independent record label known as Continuum Records, founded by Tim Brack, which signed such artists as Charlie Watts, Ronnie Wood and Roger Daltry.
In 1994 the Continuum Group went public as a a pink sheet, the stock of small companies that are traded in the over-the-counter market that file for public registration but don’t have to issue financial statements. At the time, employees of the company used to privately chortle: ‘what rock’n’roll music fan wouldn’t want to own the stock shares of the Rolling Stones and The Who?’ -- a somewhat misleading claim as the artists were signed to individual recording acts at a time long past their commercial prime. By 1997, Continuum was out of business.