A commercial paper program is an ongoing arrangement for the continuous issuance of commercial paper on a tap basis established for several years or open-ended, whereby paper is continuously rolled over with the proceeds of the program’s new issues used to fund the retirement of maturing issues.  A CP program allows investor interest to be tapped at any time on demand.

Although each individual CP is a short-term obligation of the issuer, CP programs provide a source of corporate funding for several years.

Year-End US Commercial Paper Outstanding 2014, 2015 and 2016 ($ bn)
Weeks after December 31
1 2 3 4 5 6 7 8 9 10 11 12 13 14
2014 152.8 100.8 80.4 57.0 73.7 58.0 43.7 40.9 49.9 35.2 32.6 22.3 21.4 17.8
2015 140.0 114.6 90.7 65.4 71.6 44.3 45.4 45.1 45.9 39.2 43.0 35.3 12.8 21.9
2016 117.9 99.9 72.4 65.8 53.5 41.7 41.0 27.5 35.8 40.1 36.4 31.4 14.4 18.3
Source: Board of Governors of the Federal Reserve System

A CP program agreement defines the continuing contractual relationship between the issuer and investors, while a pricing supplement to the base prospectus contains the final terms and conditions of each issuance of CP when sold.  An annual update communicates the corporate developments of the issuer in the previous period.

Some of the key advantages of a commercial paper program to issuers are:

  1. Quick market access and flexibility to tailor issues to both market conditions and cash requirements;
  2. Borrowing costs are significantly lower than long-term funding;
  3. Funding can be obtained in smaller amounts than practical or economical in a traditional bond sale;
  4. Sale proceeds are received immediately;
  5. The program does not require debt service coverage or a reserve fund; and
  6. Issuers are afforded a broader diversification in their debt structure.

Related Items