Cash flows are the backbone of finance. From a credit perspective, the principle is simple: If there is a predictable, contractual or historically stable cash flow, it can be packaged into a bond to raise money.
Over time, this has led to some interesting and innovative bonds. Bowie Bonds, for instance, were asset-backed securities tied to David Bowie’s music catalogue. Investors received the rights to royalties from 25 of Bowie’s albums recorded before 1990. The deal raised $55 million upfront for Bowie, who immediately got liquidity to fund new projects and buy back catalogue rights, while investors gained exposure to a future royalty stream. The rise of digital music reduced royalty income, so the bonds were eventually downgraded. But, they were fully repaid by 2007. This was a precursor to music rights funds like Hipgnosis, founded in 2018, which owns and manages a portfolio of over 45,000 songs, from more than 145 catalogues.
Other such interesting transactions include film receivables wherein Studios have issued bonds backed by future box office, video and licensing revenues. In the realm of sports, an interesting transaction was discounting of stadium revenues e.g Yankee Stadium Bonds issued first in 2006 where future ticket sales, concessions and naming rights were securitized to finance construction. In 2009, Illinois State issued lottery revenue-backed bonds to fund a program aimed at revitalizing the state’s infrastructure and creating jobs. The bonds were backed by the state’s lottery revenues, ensuring a stable and consistent source of repayment. Then there were the Domino’s Pizza Bonds in the 2000s backed by cash flows from franchise fees and royalties, unique because essentially a slice of every pizza sold funded bond coupons! In education, we have seen bonds issued by educational institutions against future fees.
Other, more familiar, bonds using the principle of leveraging underlying cash flows are:
· Asset-Backed Securities against card payments
· Mortgage-Backed Securities backed by mortgage payments from homeowners
· Commercial MBS with cash flows from commercial rents, hotel revenues or mall revenues
· Toll Road Bonds backed by future toll revenues
· Airport Bonds, funded by passenger fees, landing charges and duty-free concessions
· Cell Tower Bonds, where companies securitize long-term lease payments from telecom operators
· Pharmaceutical Royalty Bonds backed by future sales/licensing revenues of blockbuster drugs
· Sovereign Bonds issued by Mexico,Turkey and Brazil backed by Oil export proceeds, airline ticket sales and even workers’ remittances.
Financial markets have shown that any predictable cash flow can be turned into capital. Issuers unlock upfront liquidity, while investors take the bet on how future revenues perform. This is a reminder that capital markets can monetize almost anything and financial engineering can turn culture, consumption and even chance into asset classes!
