IP Securitization

The World Intellectual Property Organization (WIPO) describes the securitization of intellectual property (IP) assets as “a new trend”. It has now been more than seven years since the introduction of the so-called Bowie bonds - regarded as the first ever music royalties future receivable securitization - which gave rise to IP securitization as a financing vehicle.

“Securitization” is a technique for isolating incomeproducing IP assets by transferring them to bankruptcy- remote special-purpose vehicles (“SPVs”), which then issue debt securities payable from the cash flows generated by the IP assets. These securities achieve ratings which are de-linked from the rating (or lack thereof) of the transferor company or institution. Different series of securities backed by the assets may be issued to respond to investor demand for different maturities (e.g., fast pay/slow pay) and credit qualities (e.g., senior/subordinated). Through internal structuring or third-party credit support, the marketed securities are generally rated between BBB/Baa and AAA/Aaa, although the highest ratings are usually achievable only through wrapping the securities with financial guarantees. A securitization, unlike a bond, is non-recourse to the sponsoring company. In other words, the company does not guarantee the repayment of a securitization, whereas it generally does guarantee the obligations under a corporate bond issue. In addition, fewer and less onerous financial covenants and operating restrictions may be imposed on the sponsoring company than would be required in a direct bond issuance.

ipeg provides IP securitization services in conjunction with two well known securitization expert firms, Ronald S. Borod at Brown Rudnick Berlack Israels LLP and Donald R. Davis at Commercial Strategy LLC, both from Boston, MA.