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Introduction to Securitization by VINOD KOTHARI, FRANK J. FABOZZI

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TYPES OF ABCP CONDUITS

The issuance of ABCP is a standard and ongoing feature, so banks mostly run ongoing programs for ABCP issuance. These are run on the balance sheet as a specific entity, called a conduit. The conduit is a thinly capitalized special purpose vehicle (SPV), satisfying the general criteria for bankruptcy remoteness. On a continuing basis, the conduit continues to acquire assets and funds by issuing CP. However, there is almost necessarily an asset-liability mismatch, requiring the bank to provide liquidity support to the conduit.
It is not difficult to understand why liquidity support is needed. As noted earlier, originally, ABCP conduits were planned as devices for buying trade paper originated by major clients of banks. However, over time, they have bought all kinds of securities, including ABS. Hence, on the liability side, most of the liabilities of the conduits are short term, and on the asset side, we have a mix of short-term and medium-term paper. There is, obviously, an asset-liability mismatch. The conduits hope to be able to manage the mismatch by continuously rolling or revolving their liabilities, but then, to be able to repay the liabilities as they mature, the conduits tie up a liquidity support, mostly with the sponsoring banks.
Next we discuss the different types of conduits based on different criteria.

Conduits Based on Liquidity Support

Depending upon whether the bank provides full or partial liquidity support to the conduit, ABCP can ...

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