No, this term doesn't refer to an advertisement for toilet tissue (that would be Backed Asset Paper Commercial), and it doesn't designate a humorous procession up a mountain featuring bagpipes and a bunch of pastries (that would be a Comical Piper Baked Ascent, which frankly isn't even close, unless you have both dyslexia and a massive speech impediment).
Instead, this is commercial paper that has some asset providing it with collateral. Got it? No, didn't think so. We figured that definition would probably require a bit more of a break down.
First, commercial paper. Typically, this term refers to a short-term debt security. Basically, a company is borrowing money from investors and the commercial paper acts as the I.O.U. Often, this paper is unsecured, meaning that investors have no recourse if the company defaults. But the chance of default are low, because the time limit is so short. It's like your buddy borrowing 20 bucks from you to go to the movies, with the promise that he'll pay you back next week. Except it's on a corporate level, so we could be talking about millions of dollars of corporate paper.
Asset backed corporate paper goes the additional step of adding collateral. Usually, the asset back-stopping the paper is something like credit card or auto loan receivables. Since they are short-term, the maturity dates of the asset backed commercial paper are no more than 270 days.
For the issuer, selling the asset backed securities generates short-term capital to cover immediate expenses and smooth out the business cycle, similar to how companies will use a line of credit.
For investors, the prospect is usually relatively safe, because the maturity dates come soon enough that there isn't a big chance of a surprise default (hopefully, you can trust a company to stay in business for the next 9 months). Plus the investors' cash is only tied up for a brief period of time, and the interest rate is likely higher than something like a money market.
Related or Semi-related Video
Finance: What is a Money Market Fund?80 Views
finance a la shmoop. what is a money market fund? isn't it a strange concept
to think about going to a market to buy money? [man walks through grocery store]
well yeah it's strange but the practice exists and it's a huge multi trillion
dollar market today. the key word here is money and not investment. why such a big
diff? well because the notion of investing implies duration. that is when
you invest in a nice fixer-upper home or a tractor distribution company or shares
in a fat dividend-paying bank you're investing for presumably a long time [people stand in line]
like years maybe decades maybe centuries if you can find the right miracle pill.
but here we're talking about money like the stuff you can buy candy with. so it's
short term not long and a money market fund basically comprises many series of
pretty safe bonds that are all coming due in the next 30 to 90 days. sometimes [pie chart]
longer than that sometimes shorter but generally in the very near future. so why
would you care about a money market fund? well because it pays you slightly more
interest on your money than say a bank checking account. and lots of people in
corporations need cash just sitting around to pay their bills, so there are
tons of money market funds out there available and that's the gist of a money
market fund. we're sure you'll have plenty of experience with them by the
time you hit your sixth hundredth birthday day [people cheer and hold birthday cake]
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