Crescendo Royalty Funding will issue $303 million in asset-backed securities, secured by the song catalogs of a range of musicians, including Tim McGraw and The Who.
The catalog consists of 52,729 songs. About 71% of the net royalties are from songs that are more than nine years old. The top 25 songs are heavily represented by accomplished musicians in the classic rock, country and pop genres, according to Kroll Bond Rating agency, which will assign ratings to the notes. More than 200 songs topped the Billboard charts, while over 800 were charted hits.
The top sub-catalog comprises 16.5% of the portfolio, while the rest of the sub-catalogs represent no more than 7.3%. KBRA also noted that the primary artist is a multi-generational performer who has a proven track record of consistent cash flows over time.
Guggenheim Securities is the structuring advisor and placement agent on the transaction, while Northleaf Capital Partners is the manager. Crescendo Royalty is the Northleaf’s first music royalty securitization. Notes will be issued from a single class of notes. KBRA expects to assign an ‘A’ rating to the notes, which have a final maturity date of December 2051.
FTI Consulting, which will serve as the back-up manager should Northleaf be terminated, valued the catalog at $467.4 million, an estimate that does not credit revenue generated from name, image and likeness rights. Only publishing rights, sound recording rights, futures and administrative rights underpin the collateral.
The trust will repay bondholders on a quarterly basis, and payments on principal are not slated to begin until after the anticipated repayment date, December 2026.
One potential credit negative is litigation risk. The catalog is not subject to any meaningful litigation, but two outstanding infringement claims exist involving two songs. They represent less than 0.02% in aggregate of 2020 net publisher share (NPS).
Streaming is the fastest growing channel for music consumption, and vintage music is the biggest growth area in music streaming, KBRA said in its report, citing a 2019 Nielsen study. In 2019, major services, including Spotify, YouTube, and Amazon created executive roles for “head of catalog,” which involves promoting older music in ways that engage listeners of all ages.
