Sotheby’s pitches first of its kind offer secured by art collections of the wealthy

SOTHEBY’S, the auction house owned by French telecom billionaire Patrick Drahi, is pitching investors a first of its kind: a securitisation of personal loans to the wealthy secured on their art collections.

Discussions about the offering remain at the early stages but Sotheby’s expects to bring the asset-backed security (ABS) to the market later in the year, according to people with knowledge of the matter.

The company started talking with bond buyers about the product last year, the people added, asking not to be identified as the talks are private. No final decision has been made and the size and timing of the deal could still change.

A representative for Sotheby’s declined to comment.

Lending to rich art collectors has been a lucrative business for wealth managers for years. Outstanding loans against art were forecast to increase to more than US$31 billion last year, according to a report by Deloitte, the latest figure available.

Ultra-high-net-worth individuals have about US$1.5 trillion of their money tied up in personal art collections, Deloitte estimates, with valuations fuelled by the bull run in markets since the financial crisis. The most expensive painting sold last year was Andy Warhol’s Shot Sage Blue Marilyn, which went for US$195 million.

Some speciality finance firms, such as Art Capital Group, have also specialised in underwriting art-backed loans, but Sotheby’s would be the first to bring an ABS-style product to the market, according to data compiled by Bloomberg. It would follow the likes of Credit Suisse Group, which last year securitised a portfolio of loans tied to yachts and private jets.

IPO plan

Last year, the renowned art broker considered an initial public offering (IPO) in the US, seeking a value of about US$5 billion excluding debt. Falling share prices subsequently shut the door on new listings.

Drahi, himself a major art collector, has spoken with Abu Dhabi investors about becoming anchor shareholders in an IPO and may look again at listing the group this year, Bloomberg reported last month.

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The conversations about the art-linked bond are taking place as ABS markets recover somewhat from the turmoil caused by interest rate increases and borrowers come back into the market. Still, sales of the securities remain more than 10 per cent lower than at this time last year, according to data compiled by Bloomberg. BLOOMBERG