Glossario
Asset-Backed Commercial Paper
Categoria —
Tipi di obbligazioni
Asset-backed commercial paper is a short-term financial instrument. It is usually used to diversify portfolios and generate short-term earnings. Its maturity is between 90 and 270 days and is usually issued by a financial institution or a large company in order to repay short-term debts and / or liabilities. Normally the guarantee of this type of commercial paper is given by the issuer itself through its physical assets such as, for example, trade receivables. It therefore responds to short-term liquidity needs.
This type of commercial papers are issued by a vehicle company (SPV) set up specifically for the occasion. The expiry date is set no later than 270 days from issue. The difference with a typical commercial paper is its guarantee: in fact the issuer guarantees the solidity of the ABCP with a variety of financial assets such as, for example, commercial loans, CDOs. All assets pledged as collateral usually have very high credit ratings (AAA).
Therefore, ABCPs are purchased by investors at a discount price compared to their nominal value and, on the expiry date, receive a refund equal to 100% of their nominal value. This activity also includes placement agents (usually investment banks) who are responsible for ensuring the reimbursement of investors by the issuing SPV.
The advantages of this particular type of commercial cards are their source of liquidity in the short term at a not very high risk (by virtue of the very nature of a short-term instrument). They are also safer than standard Commercial Papers as the latter do not have guarantees. The main problem, on the other hand, lies in the nature of the financial assets pledged as collateral. In fact, during the 2007-08 crisis, it was seen how very often SPVs pledged more and more illiquid or leveraged assets which therefore do not ensure the same level of security. Furthermore, the financial assets pledged as collateral must be consistent with the time maturity of the ABCPs: mortgages should never be pledged as collateral by virtue of their long-term nature.
This type of commercial papers are issued by a vehicle company (SPV) set up specifically for the occasion. The expiry date is set no later than 270 days from issue. The difference with a typical commercial paper is its guarantee: in fact the issuer guarantees the solidity of the ABCP with a variety of financial assets such as, for example, commercial loans, CDOs. All assets pledged as collateral usually have very high credit ratings (AAA).
Therefore, ABCPs are purchased by investors at a discount price compared to their nominal value and, on the expiry date, receive a refund equal to 100% of their nominal value. This activity also includes placement agents (usually investment banks) who are responsible for ensuring the reimbursement of investors by the issuing SPV.
The advantages of this particular type of commercial cards are their source of liquidity in the short term at a not very high risk (by virtue of the very nature of a short-term instrument). They are also safer than standard Commercial Papers as the latter do not have guarantees. The main problem, on the other hand, lies in the nature of the financial assets pledged as collateral. In fact, during the 2007-08 crisis, it was seen how very often SPVs pledged more and more illiquid or leveraged assets which therefore do not ensure the same level of security. Furthermore, the financial assets pledged as collateral must be consistent with the time maturity of the ABCPs: mortgages should never be pledged as collateral by virtue of their long-term nature.
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