Bowie Bond – Definition

Cite this article as:"Bowie Bond – Definition," in The Business Professor, updated February 23, 2020, last accessed June 2, 2020, https://thebusinessprofessor.com/lesson/bowie-bond-definition/.

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Bowie Bond Definition

A bowie bond is an example of a celebrity bond and was introduced by David Pullman in 1997, the investment banker of David Bowie.  A celebrity bond is usually music-based. These bonds were issued in 1997 as asset-based security to cover the current and future revenue from 25 albums of David Bowie for a period of 10 years.

A Little More on What is a Bowie Bond

The 25 albums covered by Bowie Bonds were his songs released before 1990, these were used as the underlying security. They were purchased by Prudential Financial for a sum of  $55 million with an interest rate of 7.9%

The bonds began to depreciate in early 2000 as there was the introduction of online music and MP3. In 2004, the bonds were downgraded by Moody to a level just above junk status.

In 2007, the bowie bonds matured and liquidated to Bowie.

Later several artists jumped on the bandwagon of using intellectual property rights as a basis for securities. Some of the other artistes are; Ashford & Simpson, James Brown, Iron Maiden, Isley Brothers, and Rod Stewart

Reference for “Bowie Bond”

https://www.investopedia.com/terms/b/bowie-bond.asp

https://www.investopedia.com › Investing › Bonds / Fixed Income

https://www.bbc.com/news/business-35280945

https://en.wikipedia.org/wiki/Celebrity_bond

https://ftalphaville.ft.com/2016/01/11/2149761/a-short-history-of-the-bowie-bond/

Academic research for “Bowie Bond”

 Interest Rates 3: Composition of Interest Rates, Faure, A. P. (2014). Interest Rates 3: Composition of Interest Rates.  This is the third in a series of seven papers on interest rates and it covers the yield curve, the literature on the composition of interest rates, an alternative analysis of composition of interest rates, the literature on the risk-free rate, an alternative view of the risk-free rate, and an analysis of the relationship of interest rates. The seven papers cover: (1) what are interest rates?; (2) relationship of interest rates; (3) composition of interest rates; (4) interest rate discovery; (5) bank liquidity & interest rate discovery; (6) role of interest rates; (7) an optimal rate of interest: the natural rate.

Managing Global Volatility, Arora, P. (2003). Managing Global VolatilityAvailable at SSRN 368240. We define global volatility as the weighted average volatility of four major asset classes (Equities, Fixed Income, Foreign Exchange and Commodities), with weights based on Market Capitalization. Equity and Fixed Income account for 70% of the weight and we primarily focus on them.

Promoting intellectual property securitization for financing creative industry in Indonesia: challenges and solutions, Mas Rahmah, S. H. Promoting intellectual property securitization for financing creative industry in Indonesia: challenges and solutions. International Journal of Indonesian Studies, 77.

On the economics of securitization: A framework and some lessons from US experience, Van Order, R. (2007). On the economics of securitization: A framework and some lessons from US experience. Ross School of Business Paper, (1082). The paper provides a framework for analyzing the development of securitization as a vehicle for funding loans. Broadly speaking there are two models for funding loans: the portfolio lender model, which typically involves banks or other intermediaries originating and holding the loans and funding them mainly with debt, most often deposits, and the securitization model, which involves tapping bond markets for funds, for instance by pooling loans and selling shares in the pools. A central issue with securitization is that while securities markets are efficient sources of funding, they also involve agency costs because bond market investors are often at an informational disadvantage relative to other traders. The paper discusses alternative structures and tradeoffs among them, and the role of the public policy in securitization.

The Equity Risk Premium and the Equity Premium Puzzle, Chen, J. M. (2016). The Equity Risk Premium and the Equity Premium Puzzle. In Finance and the Behavioral Prospect (pp. 137-179). Palgrave Macmillan, Cham. All of finance rests on the proposition that investors dislike risk and demand higher returns as compensation for bearing risk. In behavioral terms, the equity risk premium may be regarded as the additional rate of return that risk-averse investors, as a class, demand in exchange for the burden of bearing volatility and the attendant risk of downside loss. Although one study has concluded that the replacement of standard deviation in the conventional CAPM by a downside risk measure would advise investors to lower the stock allocations within their portfolios,1 another study suggests that investors’ reliance on fixed-income positions vastly exceeds the allocation that any strictly rational, utilitarian evaluation of risk in equity investing would ever counsel.2 Given the presence of a “sizeable equity premium,” why indeed should “a substantial fraction of investable wealth [be] invested in fixed income instruments”?3

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