Asset-backed commercial paper (
ABCP) is a type of securitization that involves the sale of short-term debt securities backed by a pool of assets. ABCP is typically issued by a special purpose vehicle (SPV) that is created by a bank or other financial institution. The SPV uses the proceeds from the sale of ABCP to purchase the assets that will back the securities.
ABCP is often used to finance short-term assets, such as receivables or inventory. It can also be used to finance longer-term assets, such as mortgages or student loans. ABCP is a popular form of financing because it allows issuers to access short-term funding at a lower cost than they would be able to obtain through traditional bank loans. ABCP is a complex financial instrument that carries a number of risks.
These risks include:
Credit risk: The value of ABCP is linked to the creditworthiness of the assets that back the securities. If the assets default, the value of the ABCP will decline. Liquidity risk: ABCP is a short-term instrument, so it can be difficult to sell if investors need cash quickly.
Interest rate risk: The value of ABCP is sensitive to changes in interest rates. If interest rates rise, the value of ABCP will decline. Investors should carefully consider the risks of ABCP before investing in this type of security.
Here are some additional details about ABCP:
- is typically issued with maturities of 30 to 180 days.
- is rated by
credit rating agencies, such as Moody's Investors Service and Standard & Poor's.
- is typically sold to institutional investors, such as banks, insurance companies, and pension funds.
- is a popular form of financing for a variety of assets, including receivables, inventory, mortgages, and student loans.
- has been used by a wide range of issuers, including both domestic and foreign companies. It has become an important tool for raising short-term capital in the global capital markets.
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