November/December 2008 / Features
Is Issuing IP Bonds a Good Move for Your Company?
Increasing pressure to squeeze value out of intellectual property has led some corporate officers to consider issuing IP bonds. The author says that, while there are some risks, these bonds can be a significant revenue source.
What the author calls the “IP bond craze” probably began in 1997, when the musician David Bowie issued $55 million in IP bonds backed by royalty payments on his songs. Film studios, clothing designers, retailers and restaurant chains have since issued IP bonds backed by outside revenue streams.
More recently, Sears “flipped the script,” the author says, by way of a complex chain of transactions that included creating a wholly-owned subsidiary, assigning some key brands to the subsidiary, and in the end creating “internal payments to itself.”
One company the author cites is attempting to build an entire business model around a similar method of securitizing intellectual property.
Accurate valuation of the intellectual property is crucial. IP bond investors bear considerable risk, and “they may be inclined to bear such risk only if they are thoroughly convinced of the underlying IP’s agreed-upon value,” the author says. Issuers may bear some risk as well, but even with those risks, the author concludes, “determining whether issuing IP bonds is the right move for your company appears to be a step worth taking.”