What is asset backed commercial paper?

A type of commercial paper that is backed by other financial assets is called an asset-backed commercial paper. A company or bank looking to enhance liquidity may sell receivables to an SPV or other conduits, which, in turn, will issue them to its investors as asset-backed commercial paper.

What is commercial paper?

Commercial paper is a short-term monetary-market debt instrument with a maturity of no more than 270 days. It is usually issued by a large corporation or financial institution to pay for inventories, account payables, and other short-term liabilities.

Are ABCPs riskier than traditional unsecured commercial paper?

Thus, under certain market conditions, ABCPs are riskier than traditional, unsecured commercial paper, despite being asset-backed. The nature and quality of the collateral assets of an ABCP are important factors that determine the credit risk.

Is commercial paper a promissory note?

Commercial paper only acts as a promissory note that is backed up by the issuing company’s high credit rating. ABCP is also issued by companies that have a high credit rating but also have additional asset-backed securities.