If Wall Street in the '90s is remembered for anything besides the raging bull market, it could be for people like Fahnestock & Co.'s David Pullman demonstrating how some investors will buy just about anything.
Earlier this month Mr. Pullman, a senior vice president, packaged and sold $55 million in securities backed by anticipated royalties from future sales of David Bowie records.
A single investor, the Prudential Insurance Co., wound up buying the entire package, which offered an "intermediate maturity" and a substantial 7.9% yield.
But Mr. Pullman, who for several years has specialized in searching through the weeds for assets suitable for resale to investors, is confident it's only a matter of time before the innovative asset-backed securities he devises attract a wider audience.
"It's the new frontier," says Mr. Pullman, 34. "We have high-tech, biotech, and now this is financial tech."
Asset-backed securities are one the fastest growing segments of finance on Wall Street. Nearly $150 billion of such issues were sold in public markets in 1996, according to Securities Data Co., up from a negligible amount only 10 years ago.
By now, the public market is well established. Here commercial banks tap investors to fund credit card receivables, auto loans, and other assets by packaging the consumer payments for sale to investors.
But the private market for asset-backeds is where Mr. Pullman and others try out their new licks. Other unusual deals recently brought to market include Chase Manhattan Corp.'s offering of $75 million of securities backed by unsold Philippine Airlines tickets.
You'll find people like Mr. Pullman in the private ABS market, where new asset classes are introduced.
Mr. Pullman hasn't tried securitizing the kitchen sink, but that's only because it doesn't have cash flow. Medical bills, campground membership dues, and auto loans to consumers with bad credit, however, all do. Mr. Pullman has packaged and sold millions of dollars worth of securities backed by these assets.
"You can do any deal at the right price," he says.
Mr. Pullman started on Wall Street in 1986, at Cantor Fitzgerald Securities. He later moved to Gruntal & Co., where he started packaging and selling exotic asset-backed securities. He started work on the Bowie deal at Gruntal and took it with him when he moved to Fahnestock in January.
Mr. Pullman acknowledges that all his securities are for investors willing to bear big risks. But like any good dealmaker, he believes in his product.
In anticipation of the Bowie deal, Mr. Pullman prepared a press kit complete with prepared quotes that hinted at the star power that was being put in play:
"DB's ability to immediately embrace new ideas and technology is a testament to his position as a rock legend innovator." And, "DB does nothing form (sic) money. Pure artist."
The deal began, Mr. Pullman says, when RZO, a music business management firm, called. "RZO was looking to sell or license Bowie's catalogue," Mr. Pullman recalls.
But unlike most musicians, Bowie owns the publishing rights to his work. Upon discovering this, Mr. Pullman had an epiphany.
"We can do this!" he said, meaning securitize future receivables. "Bowie picked it up right away. He's very savvy. It says a lot about people in the financial community that he's more progressive than they are."
The rest just might be rock 'n' roll-and financial-history. Certainly one successful deal makes another possible. Mr. Pullman says it could involve another RZO client with a proven history of steady record sales, perhaps the Rolling Stones or Paul Simon.
"We're a boutique business," Mr. Pullman says. "We do exotic stuff. One day everyone else may wake up to what we're doing."
Analysts say the Bowie deal could be just the first of many.
"When investors see a new deal like this they go pretty ga-ga," says Jeff Salmon, head of ABS research at UBS Securities LLC. "They like to diversify beyond credit cards and auto loans, and this deal could set precedent for other entertainers looking to tap this market."
The only question, Mr. Salmon said, is whether enough entertainers will be willing to securitize royalties their as-yet-unsold work to meet investor demand.
Other rating agencies declined to rate the deal, but Moody's Investors Service granted an investment grade rating of A3 to the Bowie-backed bonds.
"As long as you can predict the cash flows, I think it's O.K.," said Moody's analyst Arturo Cifuentes. "Economically, this deal may seem strange, but it makes sense so long as Bowie's records sell."
Although the Bowie deal may be geared to investors looking to bet on musical taste, Mr. Pullman says his other securitizations are designed to help upstart business grow.
"Using this form of funding, businesses can be independent of bank lines of credit," he says.
In this sense, asset-backed securities are to the '90s what junk bonds were in the '80s: A new source of financing for companies that couldn't otherwise get it.
For example, securitization made possible the rapid growth in subprime auto lending. Over $1.6 billion in securities backed by auto loans to customers with bad credit were sold in 1996, a 660% increase over 1995, according to Prudential Securities.
One of the reasons some of the largest subprime lenders are experiencing financial difficulty now, analysts and investors say, is that securitization enabled them to grow too fast.
When not devising deals, Mr. Pullman runs competitive five-kilometer races to blow off steam. His favorite spectator sport is track and field.
Of course, the best part of any deal is the victory lap at closing. And Mr. Pullman-whose favorite Bowie song is "Fame"-had ample reason to strut when he sold the Bowie bonds. The deal got him the attention of business reporters the world over.
"I've heard from Reuters, CNN, and CNBC!" he said to a friend on the phone the day after the deal closed. "No, Bowie isn't talking, so I'm on. Keep the TV on all night!"
Talk of banks wipes off the smile from Mr. Pullman's face; he doesn't care for them. And bankers at places like Chase Manhattan-which securitized more assets last year than any other commercial bank-won't even discuss Mr. Pullman or his field except to point out that it's such a tiny slice of the market for asset-backed securities.
Nevertheless, bankers are interested in his success. Chase, along with other commercial banks that have investment banking arms, is developing deals in Latin America and Asia of securities backed by assets that haven't yet been sold. These deals are politely called "future flows."
But Mr. Pullman doesn't care about the big boys; he's too busy persuading people to put on their red shoes and dance with him.