Rising interest rates rates put a freeze on the purchases of music catalogs by private-equity backed businesses, The Financial Times reported Thursday.
Wall Street giants KKR, Apollo and Blackstone have pulled back on their promises to fund big catalog buys, still not spending the $3 billion they collectively pledged in October 2021, in large part because the rising rates made it harder to justify loading up the assets with the amount of debt they had planned to use.
The firms had planned not to provide cash, but to finance the deals with debt, a frequent strategy in the private equity world. But increased borrowing costs would depress the cash flows music rights owners could expect, making high-interest borrowing less appealing.
The FT wrote that KKR, which began its investments in music royalties earlier than its rivals, has not bought music for at least a year. Despite its $1 billion partnership with BMG, KKR reached just “a handful” of deals, including for songs by ZZ Top in December 2021 and John Legend in January 2022, the report said, citing a person familiar with the matter.
The report noted that KKR this week hired an advisory firm to evaluate options — Wall Street language for exploring a sale — for its $1.1 billion in music assets, which includes a catalogue of 62,000 songs, which also includes work by Lorde and The Weeknd.
Apollo has not made a new equity investment in song royalties for at least two years, The FT said, after spending just $200 million of the $1 billion it pledged when it backed HarbourView Equity Partners in October 2021.
HarbourView has since looked to other investors for cash, the report said. The firm this year announced deals for the catalogs of Blackbear, Wiz Khalifa and rapper Nelly.
Blackstone, which backs Hipgnosis, has spent just shy of $700 million out of the $1 billion it pledged, including headline-grabbing deals with Justin Bieber and Justin Timberlake. But Hipgnosis is dealing with a shareholder revolt, including votes to restructure the business and reject a proposal to sell some of its assets to Blackstone.
Higher interest rates also serve to make more traditional financial investments more attractive, Nat Zilkha, a former KKR partner who had led the firm’s moves into music, told The FT, which has shifted private equity firms’ attention away from music investments.
“As a result their interest in less liquid, less well-understood asset classes has waned,” said Zilkha, who left KKR at the end of 2021 but is still an adviser. “Music is near the top of that [list]
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