Crescendo Royalty Funding will issue $ 303 million in asset-backed titles backed by song catalogs from a range of musicians, including Tim McGraw and The Who.
The catalog consists of 52,729 songs. About 71% of net royalties come from songs over nine years old. The top 25 songs are heavily represented by accomplished musicians in the classic rock, country and pop genres, according to the Kroll Bond Rating agency, which will assign ratings to ratings. Over 200 songs topped the Billboard charts, while over 800 were hits.
The first sub-catalog comprises 16.5% of the portfolio, while the rest of the sub-catalogs represent only 7.3%. KBRA also noted that the lead artist is a multigenerational artist who has a proven track record of consistent cash flow over time.
Guggenheim Securities is the structuring advisor and placement agent for the transaction, while Northleaf Capital Partners is the manager. Crescendo Royalty is Northleaf’s first music royalty securitization. Tickets will be issued from a single ticket category. KBRA plans to assign an “A” rating to the Notes, which have a final maturity date of December 2051.
FTI Consulting, which will serve as the backup manager in the event of Northleaf’s termination, 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 contracts and administrative rights underpin the collateral.
The trust will repay bondholders on a quarterly basis, and principal payments are not expected to begin until after the scheduled repayment date, December 2026.
A potential negative credit is the risk of litigation. The catalog is not the subject of any significant litigation, but there are two pending infringement complaints relating to two songs. They represent less than 0.02% of the total net publisher share (NPS) of 2020.
Streaming is the fastest growing music consumption channel, and vintage music is the most important growth area in music streaming, KBRA said in its report, citing a 2019 Nielsen study. In 2019, major services, including Spotify, YouTube and Amazon, have created leadership roles for the “catalog manager,” which involves promoting older music in ways that engage listeners of all ages.