Asset-Backed Commercial Paper

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Asset-backed commercial paper (ABCP) is a form of short-term debt created when an issuing party (usually a bank or other financial institution) agrees to pay a given sum of money to a recipient, typically a company in need of immediate cash or other liquid assets, in exchange for the recipient's sale of certain assets to the issuer as collateral, in addition to the recipient's promise to pay back the sum in between 90-270 days.

The issuing party, after purchasing receivables from the company desiring to issue ABCP and thus obtaining rights to the cash flows they create, then channel those cash flows into the ABCP it eventually sells to private investors.

Conduits

ABCP conduits are the institutions that issue asset-backed commercial paper. They are typically minimally capitalized, owned by management companies that are separate from the capital providers that created them, and are designed to have as little risk of bankruptcy as possible. To accomplish this bankruptcy remoteness, strict limits for ABCP conduits are set concerning the conduit's business activity as well as the level of ABCP they are allowed to issue at any one given time. There are also non-petition clauses required between ABCP issuers and recipients.

Repayment

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