Paid in Full: How Alternative Asset Managers Are Powering the Rise of Royalty Securitization

I. Executive Summary

Royalty securitization, once a specialized corner of the asset-backed securities market populated by a handful of catalog owners and drug royalty aggregators, has broadened considerably over the past several years, propelled in large part by alternative asset managers, private credit funds and specialty finance platforms that have built dedicated royalty acquisition and origination businesses. At bottom, a royalty securitization asks investors, increasingly alternative asset managers and specialty credit platforms alongside traditional insurance and pension capital, to underwrite a single proposition: that a defined stream of contractual payments, whether generated by a music catalog, a patented drug, or a film library, will continue for long enough in sufficient volume to service a series of notes. That proposition has proven robust and adaptable enough to permit an asset class that began with music catalogs and pharmaceutical royalty streams to expand in recent years to include film and television rights, and to encourage market participants to continue to explore other recurring, contractually grounded cash flows as candidates for similar treatment.

The durability of this proposition has also underpinned the growth of the royalty securitization market, attracting investment from insurance companies, pension funds and specialty credit managers across several very different underlying asset types. Cumulative issuance in the music royalty ABS sector alone since 2020 has exceeded US$12 billion, while annual deal volume in the broader life sciences royalty finance market, spanning both securitized and bilateral structures, has grown from roughly US$5 billion to over US$7 billion over the same period. As established royalty asset types demonstrated their viability, the legal architecture supporting this growth has increasingly informed structures in new, untried royalty sectors. This OnPoint surveys that growth, the structural and legal themes that recur across royalty asset classes, and the questions that will shape the market's next phase.

II. Music Royalty ABS: From Novelty to Programmatic Issuance

Music royalty securitization is not a new idea. The concept dates to the 1997 issuance of the “Bowie Bonds,” backed by revenue streams from David Bowie’s back catalog, which introduced the market to the notion that a song catalog could support rated debt. That early transaction later ran into trouble when the underlying revenue base proved less predictable than assumed, and the asset class largely went dormant for the better part of two decades.

The modern iteration of the market began to take shape in earnest starting in 2020, corresponding with the maturation of licensed streaming as the main source of revenue for recorded music, and it looks considerably different from its predecessor. From 2019 to 2025, private equity firms, asset managers and institutional investors have invested upwards of US$23.1 billion in the acquisition of music rights. Issuances of rated music royalty ABS have also grown over this period, both in terms of deal volume and the number of distinct issuers involved. A rating agency active in the space indicated it has rated more than US$12.9 billion in music royalty-backed bonds since 2020, with the number of distinct issuers involved in these ratings doubling from nine in 2023 to eighteen today. This broadening of the issuer base reduces the market's historical reliance on a small number of repeat issuers and supports a more durable transaction pipeline going forward.

Several structural developments have accompanied that growth in volume. Deals have moved from single-agency to multi-agency rating coverage as issuance sizes have increased, tenors have lengthened considerably (including a ten-year tranche on one large 2025 transaction) and pricing has tightened on successive vintages from the same issuers, with one 2026 deal reportedly achieving the tightest spread yet recorded for the asset class. Repeat issuers have also increasingly adopted master trust structures, which allow a single financing platform to support multiple series of notes over time as additional catalogs are layered onto the collateral pool, rather than requiring a fresh standalone securitization for each new acquisition.

The composition of the market is shifting as well. Publishing rights (income derived from the underlying composition) and recorded music rights (income derived from the sound recording itself) are both regularly securitized, sometimes within the same collateral pool, and portfolios increasingly mix decades-old catalogs with more recently released material. While established issuers continue to focus on older, more seasoned music catalogs, which continue to be regarded as more creditworthy for ratings on music royalty transactions, rating agencies covering the sector have noted growing investor acceptance of portfolios containing higher concentrations of newer intellectual property, along with catalogs built around specific audience demographics or non-traditional content such as film scores. The performance track record for these newer categories remains comparatively thin. At the same time, the sector has entered a period of meaningful consolidation, as several long-standing independent catalog owners have been acquired by larger, often investment-grade rated platforms, a dynamic that at least one rating agency expects will modestly reduce near-term new issuance even as it potentially improves collateral diversification and servicing scale over the medium term.

Just as technological developments fueled the resurgence of music royalty financings, they may also present new challenges to the field. The proliferation of AI-generated audio content and the persistence of streaming fraud schemes designed to divert royalty payments each carry some potential to compress or redirect the revenue base underlying rated music royalty transactions. Additionally, periodic changes to the per-stream payout practices of major streaming platforms may present challenges to the predictability of streaming revenues. None of these risks currently approaches the scale of the policy overhangs facing pharmaceutical royalty valuations, discussed below, but each is a live consideration for diligence and structuring purposes.

III. Life Sciences Royalty Finance: Scale, Structure and the Policy Overhang

The life sciences royalty finance market has followed a somewhat different path. While investors had been acquiring interests in royalty streams related to patented pharmaceutical products for some time, securitizations backed by these interests first emerged in the early 2000s – initially as single asset structures but quickly moving to diversified pools. The adoption of master trust structures in the years following the financial crisis contributed to an expanded issuance of pharmaceutical royalty-backed notes. One long-standing participant in the space has, since 2005, issued more than US$1.8 billion in rated debt across multiple series from a single master trust platform, collateralized by a diversified pool of royalty streams across a range of therapeutic products, demonstrating that master trust technology can be effectively used to finance the acquisition of diversified pools of royalty-generating assets, whether in the music or pharmaceutical royalty sector. But true multi-asset, widely distributed royalty ABS with a diversified investor base remains comparatively rare in the pharmaceutical sector, and most transaction volume continues to be priced and executed as privately negotiated monetizations rather than broadly marketed securities offerings. 

Structurally, the large majority of pharmaceutical royalty monetization activity remains bilateral rather than securitized. A handful of specialized royalty aggregators dominate origination volume, acquiring royalty interests directly from biopharmaceutical companies, inventors, universities and research institutions in exchange for upfront capital, and funding those acquisitions primarily through their own balance sheets, corporate debt and credit facilities rather than through public or Rule 144A securitization. Driven largely by these activities, annual deal value in the sector has grown from roughly US$5.2 billion in 2020 to more than US$7 billion in 2025, according to one prominent market tracker, with transaction volume stabilizing at around 25 to 27 deals per year even as interest rates rose to their highest levels in two decades. This stability during a difficult rate environment has led several market observers to the conclusion that royalty finance demand has come to depend less on the availability of cheap capital and more on its status as an established source of funding for biopharmaceutical companies. The temporary contraction of the sector in 2022 is seen as driven by rate volatility and a broader biotech equity downturn rather than by the interest rate levels themselves.

The deal structures themselves have continued to evolve. Traditional royalty monetizations, involving the sale of an existing royalty stream, have been joined by an increasingly sophisticated set of synthetic royalty structures, under which an investor funds against future, not-yet-realized product revenues in exchange for a royalty-like payment stream. Market surveys indicate that synthetic transactions have shifted decisively toward true-sale treatment over the past several years, with the share of synthetic deals structured as true sales rising from roughly half in 2020 and 2021 to more than seventy percent of deal count, and over ninety percent of aggregate deal value, by 2024 and 2025. Multi-asset baskets, staged funding tranches tied to development or regulatory milestones, step-up and step-down royalty rates, and buyback or call options have all become more common deal features, reflecting a market in which sellers increasingly have the negotiating leverage to customize terms rather than accept standardized ones.

Two overhangs bear watching in this space. First, drug pricing reform, particularly the continued implementation of the Inflation Reduction Act's drug price negotiation program and related most-favored-nation pricing proposals, is widely viewed as the most significant structural risk to royalty valuations over the medium to long term, since a negotiated price reduction on a covered product could directly compress the royalty base an investor is relying on, particularly for longer-lived royalty streams where such changes have more time to compound. Second, on the regulated-investor side, insurance company purchasers of royalty-backed paper are facing a somewhat more demanding, rather than more permissive, regulatory environment, as state insurance regulators continue to scrutinize risk-based capital treatment for structured and asset-backed instruments, including renewed attention to disclosure requirements for special-purpose-vehicle-issued debt held by insurers.

IV. Film, Television and Other Emerging Royalty Asset Classes

Film and television royalty-backed ABS occupies a smaller corner of the market, and at least one major rating agency has assigned a positive sector outlook to the asset class for multiple consecutive years, reflecting the perpetual, largely non-cyclical nature of revenue generated from the ongoing exploitation of released film and television titles across theatrical, licensing, merchandising and streaming windows. While studios have long relied on monetizing the value of content libraries to fund production and acquisition costs, royalty-backed ABS structures in this sector date to the early 2000s. As with music catalogs, these transactions typically rely on libraries of already-released content, which eliminates production risk from the collateral analysis, though servicer and counterparty operational issues, including delays in the collection and remittance of underlying revenue, have periodically triggered performance-related structural tests in existing transactions, underscoring the importance of robust servicing and audit rights in the underlying documentation.

Beyond film, television and the two established anchor sectors of music and pharmaceutical royalties, market participants continue to test the boundaries of what recurring revenue streams can be securitized. Structured finance practitioners have increasingly applied royalty securitization techniques, including true sale analysis, special purpose vehicle isolation and standardized servicing and reporting protocols, to other forms of intellectual-property-linked and contractually recurring revenue, and rating agencies covering esoteric asset-backed securities have expanded their coverage into digital infrastructure, fiber network, and recurring revenue-related transactions alongside their more established music and entertainment royalty franchises. Whether any of these adjacent categories achieves the same programmatic, repeat-issuer scale that music and, to a lesser degree, pharmaceutical royalties have achieved will depend heavily on whether a sufficiently large and diversified pool of seasoned, cash-flowing rights can be assembled and standardized for rating agency and investor review.

V. The Securitization of Compute: A Case Study in Convergence

Of the emerging categories discussed in Section IV, compute infrastructure warrants separate discussion. The GPU clusters and data center capacity powering AI model training and inference have drawn capital investment on a scale that dwarfs most other esoteric asset classes, with individual hyperscale training builds now routinely running into billions of dollars. That level of spending has attracted securitization interest, but the resulting transactions do not map cleanly onto either the equipment lease ABS playbook or the royalty securitization framework. They borrow from both, and the tension between those two models is where the more difficult structuring questions arise.

The analysis for the hardware itself is straightforward. GPUs, networking equipment, cooling systems and the related physical plant are depreciating tangible assets. They can be, and indeed are, financed through conventional equipment lease and loan structures. The collateral is identifiable personal property, perfection runs through UCC Article 9, payments are contractually fixed, and the credit analysis is familiar: obligor creditworthiness, residual value at lease maturity, and replacement cost curves. Rating agencies have begun evaluating GPU-backed equipment lease paper, and a handful of privately placed deals have already closed.

But an increasing share of compute revenue does not come from fixed lease payments. Usage-based pricing, whether per-token, per-GPU-hour or per-inference, generates a recurring revenue stream that has more in common with a royalty than a lease rental. Volume depends on utilization rates, customer demand and, critically, the continued technological relevance of the underlying hardware. Where a facility’s revenue is structured as a license or service fee rather than a lease payment, the cash flows may fall more naturally within the royalty securitization framework, implicating the true sale, bankruptcy remoteness and licensing considerations discussed in Section VI.¹

This hybrid character produces several practical structuring problems. Transaction characterization is the threshold issue: whether the deal is a lease, a license, or something in between will determine whether UCC Article 2A, Article 9 or federal IP law governs the perfection and priority analysis—and different revenue streams within the same facility may point in different directions.² GPU depreciation compounds the difficulty. Hardware that can lose a substantial share of its economic value within two to three years as the next chip generation ships creates asset-life and residual-value exposure more acute than in most equipment ABS sectors, likely requiring shorter note tenors, accelerated amortization or technology-refresh mechanics that have no real precedent in traditional royalty deals.³ Counterparty concentration is another concern: a handful of hyperscale cloud providers, AI labs and large enterprise buyers currently absorb the vast majority of high-end compute capacity, producing a demand profile even more top-heavy than the concentration issues that music and pharmaceutical royalty investors are accustomed to managing.

Two recent developments are worth noting. Both CME and ICE have announced GPU compute futures contracts, and daily compute price indices are now available on Bloomberg, which could supply the standardized, observable pricing that the asset class has lacked—the same gap that made early music royalty securitizations harder to rate and that streaming revenue data eventually filled. A liquid forward curve for compute hours would allow sponsors to hedge revenue, lenders to mark collateral, and rating agencies to stress-test cash flow projections against market-derived assumptions rather than bespoke operator models. Separately, SEC staff guidance issued in July 2026 confirmed that certain data center securitizations may fall outside the Exchange Act ABS definition and therefore avoid Dodd-Frank risk retention requirements—a development that could meaningfully affect how compute-backed transactions are structured and that may tilt the market toward securitized execution rather than the bilateral model that currently predominates. Whether these catalysts prove sufficient to support programmatic, repeat-issuance platforms resembling those in the music and pharmaceutical sectors remains an open question, but the infrastructure for a more liquid, standardized compute capital market is taking shape.

VI. Recurring Legal Themes Across Royalty Asset Classes

Whatever the underlying asset, several legal and structural considerations recur across royalty securitizations, and in our experience, sponsors and their counsel who address these issues early in the structuring process tend to close more efficiently and on better terms.

True Sale and Bankruptcy Remoteness.

The threshold legal question in any royalty securitization is whether the transfer of the royalty interest from the originating rights holder to the issuing special purpose entity will be respected as a true sale, rather than recharacterized in a subsequent insolvency proceeding as a secured loan. Courts examining this question look past the labels used in the transaction documents to the economic substance of the arrangement, including whether the seller retains recourse or repurchase obligations, whether the purchase price reflects a fair, arm's-length valuation, and whether the seller retains ongoing operational control over the collection of the underlying royalty payments. Most sponsors in this space layer a backup, fully perfected security interest in the royalty stream and, in some cases, the related intellectual property on top of the sale structure as an additional protection, so that even if a true sale characterization were ultimately challenged, the buyer would still hold a first-priority secured claim rather than an unsecured one. Because the underlying agreements creating royalty obligations are frequently licenses rather than outright transfers, sponsors must also consider how the protections available to a licensee under Section 365(n) of the Bankruptcy Code, and their limitations, interact with the specific way a given royalty transaction has been documented.

Chain of Title and Underlying Rights Diligence.

Because the collateral in a royalty securitization is intangible, and its value depends entirely on the continued validity and enforceability of the underlying intellectual property or contractual right, diligence in this asset class looks quite different from a diligence exercise built around a pool of loans or leases. For a music catalog, this means confirming clear ownership or control of both the composition and, where applicable, the separate sound recording copyright, together with the absence of unrecorded liens, conflicting claims or unresolved co-writer or co-owner interests, and confirming that the underlying rights will remain enforceable for a period that comfortably exceeds the tenor of the securities being issued. For a pharmaceutical royalty, this means confirming the scope and duration of the underlying patent or regulatory exclusivity, any licensor consent or assignment restrictions embedded in the license or assignment agreement giving rise to the royalty, and the treatment of "net" versus "gross" royalty definitions, since a royalty defined net of marketing, recoupment or other deductions can behave quite differently from a comparable gross royalty stream under stress.

Master Trust and Repeat-Issuance Structures.

As royalty issuers have matured from one-off transactions into programmatic platforms, the master trust structure, long a staple of credit card, dealer floor plan, whole business and triple net lease securitizations, has become a common vehicle for both music and pharmaceutical royalty issuers. A master trust allows a sponsor to contribute additional royalty streams to a common collateral pool over time and to issue new series of notes against that expanded pool without establishing an entirely new securitization vehicle for each transaction, which can meaningfully reduce the incremental cost and lead time associated with follow-on issuances. That structure, in turn, places a premium on well-drafted provisions governing what royalty streams may be added to the pool, together with clearly defined cash flow allocation and early amortization triggers, given that new and legacy noteholders will share a common collateral base going forward.

Servicing, Concentration and Counterparty Risk.

Unlike a loan or lease, a royalty payment typically flows through one or more intermediaries, such as a music distributor, performance rights organization, or licensed pharmaceutical marketer, before it reaches the issuing entity, and disruptions at any point in that chain can delay or reduce collections independent of the underlying asset's fundamental performance. Rating agencies and investors accordingly focus heavily on servicer quality, audit rights over the underlying payor's books and records, and pool-level concentration, since a small number of dominant songs, artists or drugs can represent an outsized share of a given transaction's value; several recently rated transactions in both the music and pharmaceutical sectors have featured a small number of top assets contributing more than half of total collateral value.

VII. Dechert Observations and Outlook

In our experience advising sponsors, issuers and investors across esoteric asset classes, several themes stand out as this market continues to mature.

First, the market's center of gravity is shifting from bespoke, one-time transactions toward programmatic platforms. Whether in music, where master trust issuers now dominate rated volume, or in pharmaceutical royalties, where a handful of platforms account for the substantial majority of securitized issuance, repeat issuers with standing documentation, established servicing relationships and demonstrated performance histories are increasingly able to access the market on better terms and with shorter lead times than first-time issuers, a dynamic we expect to continue as investors reward track record and structural familiarity.

Second, consolidation among originators, particularly pronounced in the music sector as strategic acquirers absorb independent catalog platforms, is likely to reshape rather than shrink the addressable market over time. Even where consolidation temporarily reduces new issuance, as catalogs migrate onto the balance sheets of larger, often investment-grade rated acquirers, the underlying royalty streams do not disappear; they simply migrate toward alternative financing channels, including unsecured corporate debt issued by the acquiring platform. Sponsors and investors alike should expect the boundary between securitized royalty debt and conventional corporate debt to continue blurring as scaled platforms emerge across multiple royalty sectors.

Third, we expect continued cross-pollination of structuring technology across royalty asset classes. The true sale and bankruptcy remoteness architecture developed and refined in the music sector has proven readily adaptable to pharmaceutical royalties; master trust structures have evolved in both sectors to support similar programmatic goals. We see no structural reason why the same technology could not extend further into other forms of durable, contractually grounded recurring revenue, provided that a sponsor can assemble a sufficiently large, diversified and well-documented pool of underlying rights. The pace of that expansion will depend less on legal innovation, since the core structuring principles are now well established, than on whether particular asset owners and their advisors invest in the standardized data, servicing infrastructure and reporting protocols that rating agencies and institutional investors have come to expect as a condition of programmatic, rather than one-off, market access.

Finally, policy risk, whether in the form of drug pricing reform affecting pharmaceutical royalty valuations or evolving insurance regulatory capital treatment affecting the buyer base for royalty-backed paper, remains the most significant variable outside the market's own structuring choices. Sponsors bringing new royalty asset classes to market, and investors evaluating them, should build sensitivity to policy developments directly into deal structuring and diligence from the outset, rather than treating regulatory risk as a residual assumption buried in a discount rate.