Update: When Concord announced on Dec. 8 it priced the asset-backed security, the amount had increased to $1.8 billion from $1.65 billion.
Independent music company Concord is the latest to tap into a growing market for music royalty-backed securities with Concord Music Royalties, LLC, Series 2022-1, a $1.65 billion asset-backed security. The bond will be supported by mechanical, performance and synchronization royalties from more than 1 million assets.
The proceeds will be used to fund reserve accounts, pay transaction expenses, repay debt and for other general corporate purposes, according to a report by ratings agency KBRA.
KBRA gave Series 2022-1 a preliminary rating of A+ (on a scale ranging from AAA to D), citing the “large, diversified catalog with globally recognized songs and artists” such as R.E.M., Plain White T’s, Creed, Evanescence, Genesis, Phill Collins and Mike + The Mechanics — the latter three being purchased just two months ago.
The catalog generated $344.7 million in 2021, with 63% coming from recorded music and 37% from music publishing. More than 41% of the catalog’s assets were released more than 20 years ago and 23% are between 10 and 20 years old. About 3.5% of the catalog is comprised of frontline releases, defined by KBRA as “recently recorded and released music with little or no history,” and option rights that Concord can exercise for rights to future recorded music or publishing from artists in the catalog.
FTI Consulting put a $4.1 billion valuation on the catalog, according to the KBRA report. That’s about the same amount Billboard estimated Concord’s price tag would be when the company was exploring a sale in 2021 — before the purchase of the Genesis, Phil Collins and Mike + The Mechanics catalogs that Billboard estimated were worth at least $335 million and its acquisition of Australian music publisher Native Tongue. Concord had sought additional equity from its majority owner, the Michigan Retirement Systems pension fund, but turned to debt in 2020 to raise $600 million, which it used to pay down existing debt.
Among the offering’s sound recordings, Concord Music Group administers a majority and Universal Music Group distributes a majority. Concord Music Publishing administers most of the music publishing rights and ICE, ASCAP and BMI are the collective management organizations for most of the publishing rights.
Series 2022-1 contains two components: Class A-1 VFN, with a principal balance of $150 million and an anticipated repayment date of January 2026; and Class A-2, with a principal balance of $1.5 billion and an anticipated repayment date of January 2029. Class A-1 VFN will have a variable interest rate — the secured overnight financing rate plus a margin — and Class A-2 will have a fixed interest rate. The notes will pay interest quarterly.
Concord’s offering is the largest of the music royalty-backed offerings rated by KBRA in the last 12 months. KKR’s Hi-Fi Music IP Issuer II, backed by about 62,000 songs, raised $732.5 million in February. Crescendo Royalty Funding, a joint effort of Lyric Capital Group and Northleaf Capital Partners and backed by over 52,000 songs owned by Spirit Music Group, raised $303.8 million in Dec. 2021. Hipgnosis Music Assets 2022-1, backed by the Kobalt Music Copyrights Fund 1 that Hipgnosis Songs Fund acquired in 2020, raised $221.7 million in Dec. 2021.