Commercial Paper As A Source Of Short-Term Financing

Commercial Paper As A Source Of Short-Term Financing-31
Nationally recognized statistical rating organizations (NRSROs) routinely rate commercial paper issues and regularly review the strength of the credit quality of the issue.

It is a short-term, unsecured debt used by large companies, and is cheaper than a short-term bank loan.Most ABCP programs are partially supported programs, in which the program sponsor or guarantor may legally be obligated to cover only a certain percentage of defaults of the underlying assets or cover limited liquidity requirements related to delinquencies of these underlying assets.There are several programs still in existence that are fully supported, in which the program sponsor is obligated to reimburse CP investors regardless of delinquencies or defaults except in the case of a bankruptcy of the program.Lacking such a market, their value is based on models that are sensitive to a number of assumptions.- In addition, other variations of CP have been introduced in the market in recent years, including extended liquidity notes (also called extendible or structured notes) in which the maturity of the notes may extend beyond their original maturity date in the case of a default.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.Commercial paper (CP) is a short-term, unsecured promissory note issued by corporations typically used as a source of working capital, receivables financing, and other short-term financing needs. Originally the CP market was available as a funding source to only the highest credit quality entities.CP has maturities ranging anywhere from 1 to 270 days. However, innovations such as liquidity programs, credit enhancements, and various special legal structures have made CP a viable financing alternative for entities with lower credit ratings.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.


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