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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Oblomov who wrote (10611)	10/7/2001 3:27:20 PM
From: Ilaine	Read Replies (1) \| Respond to of 74559

Unsecured, but still backed in the sense that it can only be used to fund current transactions, thus must be backed with cash flow. >>That proceeds from commercial paper issues be used to finance "current transactions," which include the funding of operating expenses and the funding of current assets such as receivables and inventories. Proceeds cannot be used to finance fixed assets, such as plant and equipment, on a permanent basis. The SEC has generally interpreted the current transaction requirement broadly, approving a variety of short-term uses for commercial paper proceeds as proceeds are not traced directly from issue to use. Firms are required to show only that they have a sufficient "current transaction" capacity to justify the size of the commercial paper program (for example, a particular level of receivables or inventory). Firms are allowed to finance construction as long as the commercial paper financing is temporary and to be paid off shortly after completion of construction with long-term funding through a bond issue, bank loan, or internally generated cash flow. << toerien.com As for macro situation overall, it remains murky, and troubling, but these are unusual times. All we know about economics we learned by looking at the past. There are no immutable physical laws involved here.

To: Oblomov who wrote (10611)	10/7/2001 7:18:42 PM
From: LLCF	Respond to of 74559

<. But, my understanding (perhaps wrong) was that CP is unlike a letter of credit in that it is unsecured credit, > Yep, they're not backed by sh&^t... that's why when cash crunch comes companies can't float it right? So the decline in CP and issuance in bonds is locking companies into long term debt and forcing them to 'back' them... ie. longer term bonds usually have more protections written into the indentures... this is easy enough to check on as well. Flight to quality so to speak? You are correct IMO that the decline in CP is from lack of buyers... I'm sure they got now 'deal' on the bond issuance either. DAK

To: Oblomov who wrote (10611)	10/8/2001 12:21:28 AM
From: LLCF	Respond to of 74559

<>> Non-financial commercial paper is discounted promises to pay backed by real orders.> This is absolute tripe by the way... they're backed by the perception of the ability to pay back at the time of the float, it's simply a massive market with mostly big players with good looking balance sheets or a history of such. Items like inventories and other short term assets are all a big 'slush'... there is general rules & guidlines and that's it, they are generally not asset backed or backed by recievables as the statement implies that I know of. CP does blow up, it's buyer beware and check the statements just like unsecured loans.... you got nothin but the back of the heads of a bunch of people ahead of you in line if she blows. Hell, .com stocks were backed by promises also... of riches beyong you dreams :) DAK