For shorter-dated receivables, asset-backed commercial paper programmes offer a flexible funding and refinancing option — for corporates as sellers and for credit institutions as sponsors.
Key points
- Eligible collateral typically includes trade receivables, lease receivables, auto loans and credit card receivables.
- An SSPE acquires receivables on a rolling basis, usually under master purchase agreements.
- The SSPE funds those purchases by issuing commercial paper with a maximum maturity of one year.
- A bank sponsor typically provides a liquidity facility covering repayment of the commercial paper.
- STS for ABCP is tested at both transaction level and programme level.
How an ABCP programme works
In an ABCP programme, a securitisation special purpose entity purchases receivables on a rolling basis — typically under master purchase agreements with one or several sellers. The seller receives the purchase price as liquidity. In turn, the SSPE finances those purchases by issuing commercial paper. The commercial paper has a maximum maturity of one year; repayment is typically backstopped by a liquidity facility from a bank — the programme's sponsor.
From a legal perspective, every ABCP programme is layered:
- Transaction level — the sale of receivables by a specific seller to the programme SSPE, usually governed by a transaction-specific agreement.
- Programme level — the overarching programme documentation, liquidity support and issuance arrangements coordinated by the sponsor.
Typical asset classes
Unlike term ABS, ABCP programmes rely on receivables with shorter maturities. Typical examples:
- Trade receivables from the seller's operating business.
- Lease receivables against customers.
- Auto loans.
- Credit card receivables.
STS for ABCP — two tests
The STS regime for ABCP differentiates between an ABCP transaction and an ABCP programme:
- An ABCP transaction meets the STS criteria if it fulfils specific transaction-level requirements, largely mirroring those applicable to traditional (non-ABCP) STS securitisations.
- An ABCP programme meets the STS criteria if it fulfils additional programme-specific requirements and if the sponsor complies with a detailed catalogue of requirements on its own financial strength, oversight and risk management.