Asset Backed Commercial Paper

commercial paper issued by a special purpose vehicle (an asset backed commercial paper conduit) which is backed by assets purchased by the vehicle. Repayment on the commercial paper is ultimately legally dependent on the performance of the assets and the commercial paper investors have no recourse to the entities that sold the assets to the vehicle.

This is why asset backed commercial paper is a form of securitisation. However, the vast majority of asset backed commercial paper receives the benefit of a liquidity facility provided by the ABCP sponsor.

Today – although this was not the case prior to the GFC – these liquidity facilities are almost invariably fully supporting which means that the liquidity facility provider backstops all the risks embedded in the assets.

As a result, investors in the ABCP are really first taking the risk of the liquidity facility provider and only in case of the liquidity facility provider’s default, the risk on the assets.

Asset Backed Commercial Paper Program

the name given to a scheme under which multiple ABCP transactions are funded by a single ABCP conduit issuing ABCP.

Under an ABCP program, the ABCP investors take the risk of all the assets in the program and not the risk of individual transactions.

Put differently, the ABCP conduit issues only one type of commercial paper exposed to the risk of the assets in all the ABCP transactions entered into by the conduit but backed by a single liquidity facility provided by the ABCP sponsor.

Asset Backed Commercial Paper Sponsor

ABCP programs are set up and managed by the ABCP sponsor. These sponsors are usually large commercial banks. They run ABCP programs as another type of funding that can be offered to their clients, backed by financial assets owned by those clients. Although it is not legally required, the ABCP sponsor is almost always the provider of the liquidity facility. This means that, since modern liquidity facilities are almost always fully supporting, the risk of default on the assets is effectively taken by the sponsor.

Asset Backed Commercial Paper Conduit

a special purpose vehicle that issues asset backed commercial paper.

Almost invariably an ABCP conduit will purchase assets from multiple sellers, becoming involved in multiple securitisation transactions but issues just one series of commercial paper backed by all the transactions in the ABCP program.

ABCP Sponsor

see Asset Backed Commercial Paper Sponsor

ABCP Transaction

see Asset Backed Commercial Paper Transaction