whitepaper icon
, , ,

Fresh Perspectives on Asset-Backed Commercial Paper

2 min read

In the run-up to the 2008 financial crisis, asset-backed commercial paper (ABCP) programs were among the many investments tainted by the subprime mortgage meltdown. The crash precipitated a steady outflow from a total of $1.2 trillion in ABCP investments at their peak in late 2007 to $238 billion in October 2017. But in recent years, the size of the market appears to have stabilized. Many ABCP programs with flawed structures, which we believed were inappropriate for corporate treasury investors before the 2008 crisis, have disappeared, while surviving programs are more often fully backed by stronger sponsors. At the same time, new regulations enhancing market transparency and requiring explicit risk retention by sellers have reassured investors and enhanced credit quality.

Our research report this month, Demystifying Asset-Backed Commercial Paper: A Fresh Perspective on Opportunities and Risks, reprises research we published in 2005 and in 2015 to provide a snapshot of the market along with some practical advice for cash investors in search of yield and portfolio diversification. The report provides a clear summary of the benefits offered by current ABCP investment opportunities, including better risk diversification, reduced idiosyncratic credit risk, and attractive returns. At the same time, we provide an analysis of the structural risks, credit and liquidity risks, and operational risks still associated with ABCP investments.

What’s the bottom line? Our research concludes that ABCP investments may be an appropriate vehicle for large corporate treasury accounts due to their liquidity, flexibility, and yield potential. Different risk concerns among programs require dedicated credit expertise and regular asset collateral monitoring. While the complexity of various programs may be intimidating, corporate cash investors may benefit from selecting some of the more traditional, conservative, and higher quality ABCP names for their portfolios. For more on how and why it may be time to consider ABCP investments, download our report below.

 

DOWNLOAD FULL REPORT

Best Regards,

Ben Campbell
CEO

Please click here for disclosure information: Our research is for personal, non-commercial use only. You may not copy, distribute or modify content contained on this Website without prior written authorization from Capital Advisors Group. By viewing this Website and/or downloading its content, you agree to the Terms of Use & Privacy Policy.

Similar Posts

dark mysterious landscape with many doors

Asset-Backed Securities in Cash Portfolios: Worth the Effort or Unnecessary Complexity?

Credit & Risk

18 min read18 min readFinancial markets have closely monitored consumers’ financial health following the COVID-19 pandemic to gauge when the exceptional economic tailwind provided by high levels of household savings would fade. Accounting for roughly two-thirds of GDP, consumer spending was juiced by pandemic era stimulus programs which ballooned household savings. These savings were later depleted as…

SMA website image

Credit Insight: The Backbone of Counterparty Risk Management

Credit & Risk

10 min read10 min readAbstract Changing credit landscapes, more complex financial products, multiple touchpoints with large financial intermediaries, and high profile bank failures are just some of the challenges treasury management professionals and cash managers face in counterparty risk management. An effective counterparty strategy should provide clarity on the counterparties’ credit strength individually and collectively, and have…

Credit Implications of The Digital Markets Act

Credit Implications of The Digital Markets Act

Credit & Risk

9 min read9 min read Introduction On March 7th, 2024, the European Commission (EC) began enforcing the Digital Markets Act (DMA), one of the most sweeping antitrust policies for Big Tech to date. Yet despite the broad scope covered under the legislation, the market reaction was relatively muted. This suggests a belief that the companies’ operational changes…

Apple Q2 Earnings: Share Buybacks, China, and AI

Apple Q2 Earnings: Share Buybacks, China, and AI

Credit & Risk

2 min read2 min readFor the quarter ending March 30th 2024, Apple reported net income of $23.6B, down 2.2% year-over-year, on revenues of $90.8B which were 4.3% lower over the same period. The change in revenues reflected a 14.2% increase in services revenue and a 9.5% decrease in product revenues. Of particular note, iPhone sales which accounted…

SMA website image

Six Advantages of Separately Managed Accounts Over Ultra Short Bond Funds

Investment Management

12 min read12 min readAbstract In a falling interest rate environment, sensitivity related to  uninsured deposits and income preservation argues for consideration of cash management vehicles outside of bank deposits and money market funds. While ultra short bond funds (USBFs) hold promise as potential yield enhancing tools, they may exhibit many of the same issues as prime…