Commercial Paper As A Source Of Short-Term Financing

Commercial Paper As A Source Of Short-Term Financing-55
With ABCP, certain assets such as credit card receivables or auto loans and their cash flows, support a specific CP issue.ABCP is usually sold through a conduit, a special purpose vehicle (SPV) established to facilitate the financing. Some SPVs pool the assets of many entities from various industries.

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Nationally recognized statistical rating organizations (NRSROs) routinely rate commercial paper issues and regularly review the strength of the credit quality of the issue.

In some instances, CP programs have been downgraded rapidly by the NRSROs.

GFOA Advisories identify specific policies and procedures necessary to minimize a government's exposure to potential loss in connection with its financial management activities.

It is not to be interpreted as GFOA sanctioning the underlying activity that gives rise to the exposure.

Firms normally examine cash flow at quarterly intervals.

Following are the sources of short-term financing: For short-term financing need of a small business, commercial banks are a good choice.- A relatively newer structure that issues CP is the structured investment vehicle (SIV).SIV programs have evolved away from the traditional funding purpose of CP.Typically, governments purchase CP with a buy and hold approach until maturity strategy. During market disruptions, investors face the scenario where issuers will be unable to issue new CP to refinance the maturing commercial paper and the secondary market disappears.While a secondary market exists that can be utilized for sales prior to maturity, there have been periods of disruption due to either issuer-specific events or as a result of a broader market wide disruption. To mitigate this risk, CP is usually backed by bank lines of credit.Important sources of short term financial planning are as follows: First of all short-term financial planning must make a forecast of future cash flows.It has two objectives – first, to decide whether the company will have surplus cash or cash deficit; and second, whether it is of temporary or permanent nature.These multiseller ABCP programs issue CP backed by the cash flows from all the underlying assets.The goal of such multiseller Programs is to enjoy the diversification from multiple sellers of various industries.Single seller ABCP programs are backed by the assets of one entity, for example a corporation.Consequently, they lack the diversification of multi-seller programs.


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