The asset back commercial paper (ABCP) credit process for State Street Global Advisors Global Cash incorporates an analysis of the sponsor/administrator, servicer, underlying assets, investment guidelines, structure, credit enhancement and liquidity provider. In analyzing a program, an in-depth due diligence is performed by the Credit Research team on the conduit sponsor/administrator and servicer, including a review of ratings, operations, systems and financials. Underlying assets are evaluated with respect to the following metrics: asset industry type, collateral, asset ratings, seller ratings, loss coverage and historical performance. A review of the investment guidelines, eligibility criteria and conduit structure is conducted to determine the risk tolerance of the conduit and the rights of the ABCP investor. The final element of analysis includes an assessment of the credit enhancement levels of both the underlying assets and program and a review of the liquidity provider. The credit decision is highly dependent on the strength of the liquidity provider (often a systemically important bank) as it is ultimately responsible for repayment of ABCP in the event of a liquidity crisis or market event.
The current global ABCP market is ~$330 billion; approximately $250 billion of which consists of US-based sponsors/liquidity providers.1 It is made up, almost exclusively, of traditional multiseller conduit issuers, where sponsors/liquidity providers are a segment of the ABCP market (collateralized commercial paper) that is utilizing a total rate of return swap structure to help fund a bank's repurchase agreement book (with this structure banks are trying to term out some of their repo funding). This segment of the ABCP market is approximately 15% of total outstandings. There is also a small single-seller segment of the market (~3% globally).2
For US ABCP issuers, the asset classes funded in the largest volume are auto loans and leases (currently ~31% of all loans funded by US ABCP issuers), trade receivables for its corporate clients (20% of total), student loans (10%), credit card receivables (8%), various forms of corporate commercial loans — including equipment finance, floorplan finance and unsecured commercial (~8% of total), and mortgages (~2%).3
For EMEA ABCP issuers, the asset classes funded in the largest volume trade receivables for its corporate clients (currently ~52% of all loans funded by EMEA ABCP issuers), auto loans and leases (~27% of total), various forms of corporate commercial loans — including equipment finance, floorplan finance, and unsecured commercial (8% of total), unsecured consumer loans (7%), and residential mortgages (~4%).4