Hipgnosis Moves Into Asset-Backed Securitization With $222 Million Bond Offering — Powered By Catalog Royalties From Justin Timberlake, Leonard Cohen, Others

Hipgnosis Acquires Ari Levine's Catalog as One Media iP Acquires Cole Taylor's Catalog
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Hipgnosis Song Management (HSM) is officially preparing to make a move into asset-backed securitization with a $222 million bond offering.

HSM’s arrival into the music-bond space – where the likes of KKR and Northleaf Capital Partners have debuted in recent months – came to light in a formal release and report from the Kroll Bond Rating Agency (KBRA). Hipgnosis Song Management, it should be clarified at the outset, is the Blackstone-powered “investment advisor” of the Hipgnosis Songs Fund, or the publicly traded (LON: SONG) entity that’s purchased all manner of music IP during the past several years.

But it’s Hipgnosis Song Management that’s made headlines for closing high-profile catalog deals in 2022; Hipgnosis Songs Fund’s gross debt has for some time been maxed out at $600 million. And amid rising rates, the Fund’s loan interest hiked from $7.3 million to $20.4 million during the 12 months ending on March 31st.

Execs in the corresponding earnings report confirmed that the business, besides shelving any plans to issue more shares yet, was “in the process of a review of its leverage structure with a view to reducing interest rate risk and control costs.”

Back to Hipgnosis Song Management’s securities, however, KBRA, having also evaluated the mentioned KKR and Northleaf Capital bonds, has issued an A- rating to the offering, which consists of recorded and publishing royalties from some 950 songs.

Said songs span “five sub-catalogs from top artists and songwriters” such as Justin Timberlake, Nelly, and Leonard Cohen. Moreover, the catalogs’ total value is $341 million, according to “an independent third-party valuation firm” analysis cited by KBRA.

This firm calculated the sum by using “a discounted cash flow method based on cash flow forecasts and a discount rate of 7.0%,” and the valuation doesn’t “give any credit to revenue generated by name, image, and likeness (NIL) rights,” KBRA made clear.

Bloomberg identified the initially highlighted $222 million figure (specifically $221.65 million) for the bonds’ sale, whereas KBRA’s release notes that interest will be paid on a semi-annual basis ahead of an anticipated repayment date in May of 2027.

Hipgnosis’ bond offering is expected to be priced next week, and in the long term, it’ll be worth following the recent trend of using music royalties to back securities.

It bears acknowledging on this front that SESAC (a subsidiary of the aforementioned Blackstone) last month executed a $335 million “whole-business deal,” according to Bloomberg, “backed by music fees from artists.” The PRO “sold similar securities” three years back, the same source indicated.