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.