Introduction to Securitization

CHAPTER 9

Asset-Backed Commercial Paper Conduits and Other Structured Vehicles

Technically speaking, the distinction between an asset-backed security (ABS) and asset-backed commercial paper (ABCP) is primarily one of the tenure of the paper. Commercial paper (CP) by definition is short-term funding,⁴² and is therefore mostly used for short-term assets such as trade receivables. ABS is medium term to long term in nature; the same instrument, if issued in the form of CP, will be ABCP. However, in many cases ABCP tries to be exactly the opposite of other asset classes such as credit card securitization. A credit card securitization finances a short-term asset with longer-term securities, while ABCP conduits raise short-term funding and make at least partial investments in longer-term paper, thereby trying to capture the the so-called arbitrage possibilities.

The term commercial paper is related to the liabilities of ABCP vehicles. As for their assets, they were initially envisaged to acquire trade paper. Over time, howerver, these vehicles have gone about investing in all forms of securities, including, as the subprime mortgage crisis would reveal, a huge amount of subprime mortgage-backed securities.

The word “conduit” implies that unlike discrete closed-end securitization issuances, these transactions are evergreen. They continue to raise funding over time, and continue to add assets. Most conduits have linkages with banks—the banks provide them liquidity support discussed ...