asset-backed security
Concord is raising $850 million through an existing asset-backed security (ABS), according to a new report by Kroll Bond Rating Agency (KBRA). These new notes are the third series of notes of a $2.6 billion ABS. The proceeds will be used to acquire approximately $217 million of assets that will be contributed to the ABS’s collateral […]
Kobalt is raising $266.5 million through the sale of a security backed by the publishing royalties of a 5,000-song catalog that includes YoungBoy Never Broke Again (a.k.a. NBA YoungBoy), AJR, Busta Rhymes and Jessie J.
The securitization is backed by a catalog valued at $410 million by Virtu Global Advisors, according to a pre-sale report by Kroll Bond Rating Agency (KBRA) released Tuesday (Feb. 20), which gave Kobalt’s asset-backed security an A- preliminary rating.
The bond allows Kobalt to raise capital on the value of the catalog and pay back investors with the publishing royalties the compositions generate. That puts music royalties in the company of common asset categories such as auto loans, mortgages and credit card receivables — all have a contractual obligation to pay — that are frequently used in asset-backed securities.
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The proceeds are expected to be used to fund reserve accounts, pay certain transaction expenses, repay existing debt and for other general corporate purposes, according to KBRA’s report.
Kobalt’s asset-backed security is the latest in a handful of large securitization deals in the music industry in recent years. Since 2021, Concord, Hipgnosis Song Management, KKR Credit Advisors (with a catalog owned and administered by Kobalt) and Northleaf Capital Partners have raised money through music asset-backed securities rated by KBRA.
The catalog backing Kobalt’s bond is diversified but younger than the typical multi-million-dollar music asset transaction. About 40% of the total net publisher share comes from compositions released since 2019 and about 43% comes from compositions first released between 2011 and 2018. Less than 3% of the total net publisher share comes from compositions from 2000 or earlier.
Nearly a third of the catalog — 29% of the last 12 months’ royalties collections — may be terminated prior to the legal final payment date in 2064, but no termination windows will fall within the next 30 years, according to KBRA. The catalogs of two artists, which account for about 1% of the catalog’s value, are subject to contractual reversion or termination prior to the final payment date. One song is currently subject to a copyright infringement claim that would result in legal expenses and reduced cash flows.
Pop music accounts for 52% of the catalog’s value while hip-hop represents 28% and rock accounts for 9%. Revenue from the United States makes up 63% of gross collections compared to 12% for the European Union and 10% for the United Kingdom.
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