Buyer Beware: The Rise of Debt in Music Rights Deals

0:04Guillaume de Chalendar: I'm Dan Runcie. Welcome to Trapital. And here we are. This is Summit Week. This is our biggest week of the year for Trapital, where Tuesday, September 15th is our third annual Trapital Summit in Hollywood. We'll have a number of speakers across music, media, technology, and entertainment that are truly building that next frontier of technology and where things are heading in this industry. but most importantly, the room is full of a lot of those same people that are pushing the boundaries that are going to be building this industry. And we're going to have an opportunity to meet with them, build relationships.

0:38Guillaume de Chalendar: One of the things that I was most grateful for last year was hearing the relationships, the partnerships, the job opportunities, the investments, everything that came from this event we had. And I'm grateful that we're able to provide that as well, including the other events that we have around the summit. It's a fun week, really excited for it. And I'll tell you this, our event producer probably wouldn't want me to tell you this because we're pretty much at capacity, but if you still wanna get in and you're gonna be in town, we will have the link up available on our website. I can't promise it'll be there the whole time, but if you still wanna get in, tap the link in our bio or go to trapital.com slash summit and you can get a ticket to join us at our third summit.

1:21Guillaume de Chalendar: Can't wait. and hopefully we'll see you there. In this week's episode, this will be a short one, of course. Our main focus this week is the summit, but we still wanted to share one more bold prediction. And this bold prediction is from the Executive Vice President of Media and Entertainment at the Bank of California. His name is Guillaume de Chalendar. I had a really fun time with this one. And he has a bold prediction that I don't think a lot of people have heard or a lot of people have said behind closed doors, but it's time to have more of these conversations. So I think you'll enjoy it. You'll also hear our chart metrics stat of the week as always.

1:57Guillaume de Chalendar: So get ready. And again, if you want to join us at the summit, the link is in our bio. But here I will turn it over so you can hear from Guillaume himself. All right. We are back with another bold prediction segment leading up to our Trapital Summit. And we are joined by Guillaume Deshalandar from Bank of California. Welcome to the show. Thank you. Great to be here. Look forward to seeing you at the summit. But this is our bold prediction segment. And as you know, we want to hear your predictions on where things are going. So what do you got? Where are we heading? I think being a banker, I'm going to focus on the capital.

2:32And I think we're going to see a continued increase in capital influx in the industry. I will just say a health warning should come attached to this. Buyer beware. And if you're European like me, you'd like probably to say it in Latin, caveat emptor.

2:47Guillaume de Chalendar: So buyer beware, say more about that. I think it's important for people to realize that there are different types of capital that is made available. And so if you own your music publishing right, if you own your recordings, you've got a very precious asset. It may make sense if you are an active composer during the middle of your career. You may say, well, actually, I don't want to just let go of this asset that's generating a lot of revenue. I should perhaps borrow against it. So at least I retain ownership of my asset. It's my baby. I've created it. I've composed it. I don't want to let go of it.

3:21I want to control it, see how it's operating. And then borrowing can be a great thing. And it's true. And borrowing is very powerful. You just need to realize that with an influx of capital, not every lender are made equal. And I'm not going to go into too much of the technicalities of the different types of debt that exist, but there are different types of debts. And not every lender are made equal. And if you're lending with people who are what we call private lenders, there is potentially a higher chance that they may behave in a way that is less borrower friendly. In some circumstances, not true of all of them.

3:58There's some very good private credit out there, very much so, and we work with a lot of them. But you need to realize that if you're pushing the boat out a little bit too much, a lender is going to have some rights to take actions to protect the loan and recoup the capital that is deployed. And that may mean that if you're leveraging too much, i.e. the multiple you're putting on the value of the asset against which you borrow is too high, and the actual revenue being generated doesn't meet expectation at maturity, i.e. when the loan is due and payable, you're going to have to have a conversation with your lender because by definition, you won't have repaid the loan in full.

4:46And this is when situation can sometime, if you don't have the right partner, become a little difficult. You know, some people, some lender may take a very harsh view and say, the money is due. You didn't pay me. I'm going to foreclose, essentially. And I'm going to take your baby away from you. If you deal with a regulated bank, that is much less likely to happen. And the bank is always going to try and work with people to find a solution. You extend the maturity date. There's a gamut of things that can be done. smaller, newer lender who perhaps, and this is the point with that new influx of capital, you have new entrants in the market who perhaps enter the market without understanding fully the music asset class as well as others may do.

5:32And that's when you may find yourself in a situation where people still overreact. And in the absolute worst case scenario, you could lose your catalog. So if you're borrowing to retain ownership and you end up in a situation where you're losing it because you've not repaid the loan. That just defeats the whole purpose of the exercise.

5:49Guillaume de Chalendar: Hence the health warning. Know whom you're getting into your relationship with. Understand the structure that is put in place. Understand the tools that are made available to the lender. It's always the same tool, so it doesn't really change much. But understand whom your lender is and how they behave so that you avoid this kind of situation that would be unfortunate. Now, I really want to say none of those situations have materialized so far. So perhaps I'm going down the rabbit hole, some people say, where I'm seeing the negative. But I think as we're seeing an increase in activity in the market, more and more people borrow, people should be aware.

6:31And it doesn't mean that people should be scared of borrowing. Certainly, I make a living out of lending to people, so people should not be scared. where people should be aware of what they're getting into.

6:46Guillaume de Chalendar: Let's take a break for our Chartmetric Stat of the Week. The song of the summer, according to TikTok, for 2026 on both its global and U.S. charts is Katy Perry's The One That Got Away. A 15-year-old song from 2011 is the song of the summer on TikTok, the social network that many people see as a key engine for music discovery, especially for younger generations. Let's sit with this for a moment, because if you spend a lot of time listening to podcasts that are critical about music culture, or if you spend a lot of time on X or other platforms, you may think that Katy Perry's a laughingstock, especially if you are of an older generation.

7:25Guillaume de Chalendar: You may think that some of her music and her antics may not have aged the best as others. I'll still defend the song Teenage Dream, but I understand where people are coming from. But that said, everyone is in their bubbles because if you go and see what's happening on TikTok, this song is clearly more popular there than Ella Langley's Choose in Texas, which according to Billboard is the most popular song of the summer. It just goes to show how different each of these different silos are. And to add more proof to that, Chartmetric has their Chartmetric Artist Rank, which measures the popularity of artists on 16 different metrics, including different streaming services and socials.

8:03Guillaume de Chalendar: Katy Perry is currently 22. Earlier points this year, she was as high as 12, but she's never been lower than 40 in the past few years. And it just goes to show that when you look at things in totality, how we talk critically about people may not actually be the reality. It may be the reality in some of our bubbles, but that is not the totality. It says a lot about where we are. It says a lot about a 15 year old song that can get to this level. And it also says a lot about Katy Perry herself. Let's get back to the episode. So I think it's safe to assume that borrowing and who you may borrow from is slightly different from, let's say in an alternative world, you were to sell and who you would be straight up buying or selling from, right?

8:43Guillaume de Chalendar: Sure. You want to make sure you're doing business with good people either way, but once a deal is done, there's less on the line as in terms of borrowing, which I can't see heightens the stakes. And it also makes me think of the weekends deal with, I believe it was Lyric Capital. And I assume that your thought is less of a statement on Lyric or whoever, just more broadly, there are more people that want to do this. Correct. And I think you raise a very important point. There is, and this is the beauty of where we are in the market with that influx of capital. There are many, many, many ways of skinning that cat.

9:15You can do a straight sell. And as you said, one and done, you've lost the control, but you've got the cash, perfect. Pure borrowing, you have to repay it. with the health warning I mentioned earlier. And then it's anything in between, you know, what we call a capital stack where you stack on top of each other different types of capital, senior debt, medicine in debt, equity in the most sophisticated of cases. And really there is no one size fits all. It really depends on your situation, the type of catalog you have, the objective you have for the long term, the strategic partner you're getting, again, in the transaction with, all of those elements are going to be a factor in the decision you make.

10:00But I think the point is back to what I was saying initially, more capital, more new entrants, more transactions, going down much deeper into the types of music catalogs that are being refinanced, as you're using the term broadly, whatever the capital type is. This is getting more sophisticated, sometimes a bit more technical in the structure. People just need to be aware of that. Just get a good advisor, essentially, is the message. And then you'll enjoy the fullness of the capital that is piling on to the industry. I mean, there's one statistic I'll just give because it's interesting. In 2020, there were no securities issued backed by music assets.

10:433.3 billion of those securities were issued in 24. Last year in 25, it was 4.4 billion. I just want people to realize the tidal wave almost of capital. It's a great thing when capital believes that your asset class is a good asset class. Just use it. Just use it wisely.

11:03Guillaume de Chalendar: So if we go back to the original prediction and we zoom out two, three years from now, are there any signals that you think you would see in the market that may make you think, oh, we got a little bit too far with this? Buyer beware. Yeah. Yeah, we are seeing some sign of some, and essentially in the debt market, the key metric is going to be what we call the LTV, the level of the loan compared to the value of the assets you're lending. Very, very, very broad strokes. For a commercial bank, you're going to get something like 50 % of the appraised value of your catalog. So your catalog is worth 100.

11:43The bank is likely to be okay lending you 50. A lot of factors come into determining that percentage. The vintage, how granular your catalog is, is the revenue concentrated on one title or is it dispersed across a large number? Lots of factors. But essentially, 50%, 60 % for the really good steady earner is what you're going to get from it. At the upper end of the market, the mezzanine lender, as we call them, they're going to go up to maybe 75 % of that appraised value of your catalog. Again, broad strokes. We are seeing some players in both areas pushing the bot out a little bit. That's a sign of a market that is getting a little frothy.

12:31And it's okay because the music asset has the characteristic that it has. It generates cash steadily.

12:40Guillaume de Chalendar: You're getting paid very regularly by people who actually use the music. So there is a steady cash flow to service the debt. You just need to be mindful of the fact that so long as the music, no pun intended, keeps playing, the merry-go-round keeps going. And that's fine. Everything performs. When the music stops is when potentially the issues that I was referring to earlier could become a problem. And so when a bank or when a main lender are really pushing those percentages, advances against the oppressed value of the catalogue, that's where potentially you're going to get in a situation that could be uncomfortable.

13:21We are starting to see some of those levels increasing. And I think certainly we are very mindful of it and some asset can justify it, absolutely. So when you do want to bring that subpartie investor by any means, do it, but do it wisely.

13:40Guillaume de Chalendar: Well, Guillaume, I appreciate you coming on and sharing that. And yeah, we'll definitely have to follow along. And I look forward to seeing you at the summit. Look forward to it as well. Thanks for your time. Thank you.

13:53Guillaume de Chalendar: And that is a wrap. Thank you again to Guillaume for joining us on this episode. Thank you to our partners at Chartmetric and Symphonic for sponsoring this episode. And thank you to G, Eric, Abigail for everyone on our team that helped make this Trapital episode possible. But most importantly, thank you for listening. If there's one person you know that would really get a lot out of Trapital, whether it's this episode or any others, send them a link to the show. Word of mouth is still the best way to grow. And if you haven't already, leave a comment, leave a review. That helps make sure that Trapital reaches the right people.

14:26Guillaume de Chalendar: And if you're not already subscribed, what are you doing? Tap that follow button, tap that subscribe button, and make sure you get the next Trapital episode wherever you listen to podcasts. Have a great week. Talk to you after the summit.