I was a keen follower of the Bowie Bonds and in Australia, someone came up with a similar thing when the floated off a petroleum royalty. It was called Bass Oil Royalty Units and the coupon was based on 2.5% of a producing oil well. The units cost A$5 each and every 6 months they repaid 25c of it and any royalties earnt. So the returns increased as your capital was slowly returned. Dr. Weeks discovered the oil in the 60's and the royalty was his reward. Weeks Petroleum is still listed on the ASX today. Australia is a small country, population wise, so the concept never really took off but makes a great study.
"If the customer churns, the company may be required to either compensate the buyer of the revenue contract on a prorated basis or replace that customer’s cash flows with those from another custom"
This sounds more like debt, no? It implies that the contract "asset" is backed by the company's balance sheet. If this company did have debt (or needs to take on future debt) this looks like it could bring challenges if any disputes arise.
Thanks for this Marc.
I was a keen follower of the Bowie Bonds and in Australia, someone came up with a similar thing when the floated off a petroleum royalty. It was called Bass Oil Royalty Units and the coupon was based on 2.5% of a producing oil well. The units cost A$5 each and every 6 months they repaid 25c of it and any royalties earnt. So the returns increased as your capital was slowly returned. Dr. Weeks discovered the oil in the 60's and the royalty was his reward. Weeks Petroleum is still listed on the ASX today. Australia is a small country, population wise, so the concept never really took off but makes a great study.
"If the customer churns, the company may be required to either compensate the buyer of the revenue contract on a prorated basis or replace that customer’s cash flows with those from another custom"
This sounds more like debt, no? It implies that the contract "asset" is backed by the company's balance sheet. If this company did have debt (or needs to take on future debt) this looks like it could bring challenges if any disputes arise.
Yes, analogy would be that customer contracts need to be overcollateralised, ie company can only put X% for some X less than 100 onto the platform.
<snip> If debt is a claim on the asset, and equity is an option on the asset, then this is a strip of the asset</snip>
Q: can you expand on the strip part?
Just that a customer ‘asset’ is a whole bunch of stuff and a 12mth revenue contract is but one piece of it.