Goldman rethinks Dylan royalties bond

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Investors have thought twice and decided it’s not alright to take up an unusual bond offering backed by royalties from songs penned by Bob Dylan and other musicians.

The $300m bond, known in the market as a non-traditional or “esoteric” asset-backed security (ABS), is being put together by Goldman Sachs on behalf of Sesac, a privately held performing rights organisation based in Nashville, Tennessee.

Sesac holds the rights to music from Mr Dylan, as well as Neil Diamond, the American pop artist, Shirley Caesar, the gospel music singer, and many others.

The deal pools the cash generated from such royalties, securitises it and passes it to investors as a way for Sesac to raise money outside of a bank loan or going to the traditional bond market.

The bond was originally expected to price earlier this month but has now been delayed until September, after Goldman’s team pulled their original offering from the market, people familiar with the matter said.

Market participants had heralded the unusual bond as an example of the lure of esoteric ABS to investors who are eager for the extra yield they can earn on more exotic assets such as music rights, movie portfolios or fast food franchises.

But competing bankers and securitisation specialists say the Sesac bond setback illustrates some of the difficulty still involved in structuring such esoteric ABS deals and pitching them to investors.

Goldman had originally intended to sell the esoteric ABS as a single chunk to investors. The single class or “tranche” would have carried a rating of BBB- or one notch above junk status from Standard & Poor’s, the credit rating agency.

After meetings with investors earlier this month, Goldman went back to the drawing board and is now said to be restructuring the deal into two separate tranches.

Investors in the senior tranche, which will carry a higher credit rating, will get paid first, meaning they will be more protected from potential losses or risks than the subordinate or “junior” tranche.

Investors in the subordinate tranche will earn a higher return but will be more exposed to the idiosyncratic risks associated with such a deal.

At the moment, Goldman bankers are still hoping to get the retooled deal away.

If the prospects darken they have plenty of options for Dylan songs to use as soundtrack for any roadshow – Most Likely You Go Your Way and I’ll Go Mine from 1966, for example, or the more recent When The Deal Goes Down.

If it falls apart entirely and bankers are denied the hunks of plastic they use to celebrate deals, they may suffer from the Tombstone Blues.

A spokesman for Goldman declined to comment on the bond offering.

Additional reporting by Tom Braithwaite

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