Understanding Commercial Paper and Line of Credit Facilities
Commercial paper is an important source of external funding for corporate borrowers and has become increasingly popular over the years.
The line of credit is the most common type of facility that is used in managing corporate liquidity. The types of lines of credit that are supported are:
Revolving or nonrevolving.
A revolving line of credit, or revolver, allows the borrower to borrow and repay as long as an available balance remains in the line of credit. This means that the amount that is available to borrow against constantly changes as the borrower repays or takes out a loan against the line. A nonrevolving line of credit decreases each time the borrower borrows money against it.
Committed or not committed.
In a committed line of credit, the counterparty is committed to grant the borrower's request for loans. This usually requires the borrower to pay a commitment fee.
For a line of credit, the system can accommodate midperiod paydowns on loans that are based on a 30/360 day count basis. For the monthly period in which the paydown occurs, the system calculates the number of days up to the payment date as the actual number of days. The system calculates the remaining days in the monthly period by subtracting the actual number of days from thirty. For example, if the paydown occurs on January 17th, the actual number of days that the system uses to calculate the interest for January is 16 days. The remaining days for calculating interest on the balance from the 17th to the end of January is 30–16 or 14 days.
Once a commercial paper facility or line of credit facility has been created, use the deal capture process for interest rate physical instruments to create a deal transaction on the facility.
To define a commercial paper or line of credit facility, access the Debt Facilities page and enter the facility type to use. (The fields and available links change depending on the facility type that you select.)
To create a commercial paper facility, the user must set up the following information:
Credit ratings debt ratings
Although PeopleSoft delivers a populated credit rating table with standard rating definitions from Moody's, Standard & Poor's, and Fitch Ratings, you may want to add additional rating definitions that are specific for your environment using the Credit Rating component (CREDIT_RTG_TBL). In addition to maintaining standard rating definitions, you must record the credit ratings that are assigned to your commercial paper program or to other debt that you may issue using the Debt Rating Maintenance component.
Issuing agents and paying agents
Issuing and paying agents must be set up through the Treasury Counterparties component. The issuing agent is an agent for the issuer of commercial paper and provides issuing instructions to the Depository Trust & Clearing Corporation (DTCC). The paying agent is also an agent for the issuer of commercial paper and is authorized to make principal and interest payments. Both issuing agents and paying agents must be members of the DTCC and are typically the same firm. All of the issuing and paying agents in the commercial paper market are commercial banks.
Dealers
Dealers are security firms whose principal role is to intermediate the process of identifying commercial paper investors. Commercial paper issuances are delivered by the DTCC to dealer accounts at the DTCC and the dealers then deliver the securities to a custodian's account on behalf of the investor.
Contacts
You enter contacts for commercial paper facilities and line-of-credit facilities are entered using the Contacts component. You can then assign these contacts to a facility on the Facility Contacts page.