Asset-backed commercial paper and associated structures

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • Asset-backed commercial paper and associated structures
  • What is asset-backed commercial paper?
  • Why use ABCP?
  • Lower cost of borrowing
  • Potentially enhanced credit-rating and reduced concentration
  • Balance sheet improvement
  • Principal ABCP markets
  • Structures
  • Structure of an ABCP transaction
  • Key features of SIVs and ABCP conduits
  • More...

Asset-backed commercial paper and associated structures

What is asset-backed commercial paper?

Commercial paper (CP) is a short-term debt security (see Practice Note: Commercial paper and euro-commercial paper).

Where CP is generally only issued by highly-rated corporate entities or by finance vehicles, asset-backed commercial paper (ABCP) can be issued by companies with a wide range of credit ratings. This is because it is secured by underlying assets, usually receivables that produce a regular stream of cashflows. These assets are what the investors focus on—not the issuer.

A variety of receivables can be used, for example:

  1. credit card debts

  2. residential mortgages

  3. commercial loans

  4. trade receivables

As with CP, it is typically issued through a programme, which is expensive to establish but results in low issuance costs in the long-term.

Regulation (EU) 2017/2402 (the EU Securitisation Regulation), and Retained Regulation (EU) 2017/2402 (the UK Securitisation Regulation), which applies in the UK as of IP Completion Day (31 December 2020), set out criteria for non-ABCP and ABCP simple, transparent and standardised (STS) securitisations (see Practice Note: Securitisation Regulation—essentials).

Why use ABCP?

The reasons for issuing ABCP are similar to those which motivate securitisation issuance. See Practice Note: Key features of securitisation and asset based lending—Rationale for more information.

Lower cost of borrowing

ABCP is used by companies seeking access to the capital markets, but who may not have the requisite credit profile to issue unsecured CP. As

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