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Enabling IP Securitization By Improving Cash Flow Predictability

By Michael Milani
April 01, 2005

As the paradigm of corporate value continues to shift from tools and machinery to ideas and innovation, there is an increasing drive to identify new and innovative ways to monetize that value. With more than two-thirds of the S&P 500 market capitalization coming from intangible assets, traditional monetization methods such as the sale, licensing, donation, and enforcement of intellectual property rights are evolving as innovative intellectual property managers and investment professionals look for ways to leverage some of that value. One such approach is the securitization of the royalty streams associated with intellectual property assets.

Generally speaking, securitization is the process of aggregating the rights to future payments that are owed (such as a stream of royalties) and selling those rights as a negotiable security. While any asset with a cash flow can be securitized, the most important characteristic of that cash flow to consider is its predictability. Most recognized for the securitization of home mortgage loans by organizations like Ginnie Mae, Fannie Mae and Freddie Mac, the practice of securitization is also regularly applied to tangible asset classes that exhibit predictable cash flows such as consumer loans and asset-backed commercial paper.

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