MONEY—Seller of ‘Bowie Bonds’ Battles Insurance Giant in Suit

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The man who packaged and sold securities based on the future royalties of rock star David Bowie has taken another step in his multibillion-dollar breach of contract lawsuit against Prudential Insurance Co. of America.

David Pullman made headlines in 1997 when he packaged the so-called “Bowie Bonds,” secured by future royalties from the 300-plus song catalog of the British singer-songwriter, and sold them to Prudential for $55 million.

The Supreme Court of the State of New York agreed last week to hear Pullman’s $3 billion suit against Prudential and a host of other firms that he claims sought to compete against him in the market for securitized intellectual property. Pullman is also seeking $500 million in punitive damages.

The suit alleges that Prudential in collusion with Pullman’s former lawyers, Willkie, Farr & Gallagher, and accountants, Rascoff/Zyblat Organization Inc. violated the terms of their partnership by forming a separate agreement with CAK/Universal Credit Corp., a company created by former EMI Group executive Charles A. Koppelman.

Neither representatives of Prudential nor its outside counsel in the case, Cahill, Gordon & Reindel, returned calls seeking comment on the case.

“In essence,” said Mitchell A. Stein, a New York patent and intellectual property lawyer serving as co-counsel for Pullman, “David Pullman created a proprietary algorithm for the securitization of intellectual property royalty streams. These revenue streams are typically unpredictable, and thus, before Pullman, it had been difficult if not impossible for the value of such streams to be determined by intellectual property lawyers, as well as (by) investment bankers.”

Pullman was more succinct: “They tried to cut us out of the deal flow.”


Going the distance

He described himself as “shocked and chagrined” by the alleged action and emphasized that he would not settle under any condition.

The deal that Pullman put together for Bowie consisted of 10-year, A-rated bonds that yielded 7.9 percent annually.

By issuing bonds against future royalties, celebrities can receive large sums of money, in effect borrowing against their future earnings. The device helps the issuer avoid income tax, since forfeiting royalties can be deducted as an expense if the proceeds of the issue are turned directly into another investment. The issuing celebrities have no downside exposure, which is borne by investors if royalties turn out to be less than expected.

Prudential brought the entire Bowie issue and Pullman used the proceeds to start The Pullman Group, based in New York and Los Angeles, which bundled similar packages for other music celebrities, taking a 10 percent commission on each deal.

Among the musicians he has structured similar deals for are the Motown song writing team of Holland-Drozier-Holland, Ashford & Simpson, the Isley Brothers and the Godfather of Soul, James Brown for whom he put together a $30 million issue in July 1999.

Though the novelty of these deals may have worn off, the business remains remarkably lucrative: Pullman’s firm has sold more than $1 billion such bonds since its formation in 1998.

The Pullman Group once enjoyed a virtual lock on the market, but other players have emerged.


Similar issues

Nomura Capital Entertainment and The Royal Bank of Scotland have entered into the arena with similar arrangements, floating bond issues of $15 million for Rod Stewart and $90 million for the catalog of published music owned by record company Chrysalis Group, respectively.

Some industry insiders downplayed Pullman’s creation as little more than emergency financing.

“The securitization of bonds is not getting more popular,” said Jay Cooper, entertainment lawyer with L.A.-based Manatt, Phelps & Phillips LLP. “It’s an expensive proposition. You have to pay fees to a Pullman-type of company. There’s also the danger that something disastrous could happen to the catalog. They (the bonds) only start to make sense if somebody needs a lot of money quickly to do something specific, like clear out debts or pay the government. But most people won’t find it that useful.”

Although Pullman declined to comment on his current clients, he says that he will be issuing several more royalties-based bond offerings this year and expects his company to generate revenues in the “eight figures” this year.

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