What is an 'Asset-Backed Commercial Paper - ABCP'

An asset-backed commercial paper (ABCP) is a short-term investment vehicle with a maturity that is typically between 90 and 180 days. The security itself is typically issued by a bank or other financial institution. The notes are backed by physical assets such as trade receivables, and are generally used for short-term financing needs.

BREAKING DOWN 'Asset-Backed Commercial Paper - ABCP'

A company or group of companies looking to enhance liquidity may sell receivables to a bank or other conduit, which, in turn, will issue them to its investors as commercial paper. The commercial paper is backed by the expected cash inflows from the receivables. As the receivables are collected, the originators are expected to pass the funds to the bank or conduit, which then passes these funds on to the note holders.

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RELATED FAQS
  1. How can retail investors invest in commercial paper?

    Find out how individual retail investors can purchase short-term commercial paper, but why it rarely makes good investment ... Read Answer >>
  2. Can retail investors buy commercial paper?

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  3. Can a business ever be too small to issue commercial paper?

    See why market forces regulate the size of companies that issue commercial paper, even though there are no official regulations ... Read Answer >>
  4. What happens when a company defaults on its commercial paper obligations?

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