What Is Eurocommercial Paper?

Eurocommercial paper (ECP) is a form of unsecured, short-term debt that is issued by a bank or corporation in the international money market. Notably, ECPs are denominated in a currency that is different from the domestic currency of the market where the paper—debt security, or bond—is issued.

Note that the "euro" prefix does not imply that these debt instruments are denominated in euros. Rather, this concept is similar to that of 澳洲幸运5官方开奖结果体彩网:eurocurrency, which represent deposits held in banks located outside of the country which iss꧃ues th๊e currency.

Understanding Eurocommercial Paper

To tap into the international money markets, corporations may issue eurocommercial paper to raise capital. As with other 澳洲幸运5官方开奖结果体彩网:commercial papers, eurocommercial papers are rarely issued for a term longer than a year. In effect, ECPs are debt instruments issued by a borrower that needs funds in the short-term. The notes have maturi𓆏ties that range from 1 day to 365 days; the most common time to maturi🔯ty is 182 days.

Commercial paper is a commonly used type of unsecured, short-term debt instrument issued by corporations, typically used for the financing of payroll, 澳洲幸运5官方开奖结果体彩网:accounts payable and inventories, and meeting other short-term liabilities. The eurocommerciꦗal paper market is particularly used by international corporations with operations in different🌠 countries.

Eurocommercial papers are usually issued in higher denominations of $100,000, with a minimum investment amount of $500,000. For this reason, the eurocommercial market is dominated by 澳洲幸运5官方开奖结果体彩网:institutional investors who have access to these securities in the 澳洲幸运5官方开奖结果体彩网:secondary market. Issuers are particularly drawn to these debt instruments because the notes demand low interest rates. Because borrowers🏅 pre💧fer to secure financing with the smallest cost of borrowing possible, ECPs are an ideal source of capital.

Other Considerations

In addition to their short-term maturities, ECPs are classified as 澳洲幸运5官方开奖结果体彩网:unsecured debt. This means that interest or principal payment obligations on the notes are not guaranteed by 澳洲幸运5官方开奖结果体彩网:collateral, which makes ECPs an attractive source of financing. Moreover, if the issuer defaults or goes bankrupt, the company will settle with ༺secured debtholders before unsecured ECP holders.

Though these debt securities may be issued in interest-bearing form, they are usually issued 澳洲幸运5官方开奖结果体彩网:at a discount to face value in the form of a promissory note and quoted in the secondary market on a 澳洲幸运5官方开奖结果体彩网:yield basis.

Eurocommercial Paper and Currency Denomination

A distinct feature of t💯hese notes is that the currency in which they are denominated differs from the currency of the market where the bond is issued. For example, if a U.S. corporation issues a short-term bond denominated in British pounds to finance its inventory through the international money market, it has issued eurocommercial paper. In this case, the U.S. firm seeks to encourage investment from pound-investors in the international money markets.

The settlement of eurocommercial paper is done through one of three 澳洲幸运5官方开奖结果体彩网:clearinghouses, namely 澳洲幸运5官方开奖结果体彩网:Euroclear, 澳洲幸运5官方开奖结果体彩网:Clearstream, and the 澳洲幸运5官方开奖结果体彩网:Depository Trust Company (DTCꦍ). ECPs settle in two working day🌳s, and overnight settlement is not an option.