CP maturities range from overnight through 270 days. Proceeds are typically used for short term funding needs, but may also fund certain non-current transactions or financings. Interest rates on CP are often lower than bank lending rates, and the differential, when large enough, provides an advantage which makes issuing CP an attractive alternative to bank credit. CP can be sold at a discount or interest bearing basis.
There are two methods of placing CP. The issuer can sell the paper directly or have a dealer sell the paper on their behalf. Direct issuers often have greater flexibility in adjusting the amounts, interest rates and maturities of issues to suit the needs of investors than programs offered through dealers. The benefits to issuers in return for providing this flexibility are typically lower borrowing costs and avoidance of dealer fees.
Dealers of CP are large securities firms and subsidiaries of bank holding companies. Most of these firms also sell other short-term securities. Non-financial companies and smaller financial companies usually issue dealer-placed paper, as the size and frequency of their borrowings usually do not warrant the maintenance of a sales staff by the issuer. Dealers typically issue CP on a discount basis only.
Commercial Paper (CP) is short-term, unsecured debt issued in the form of electronic promissory notes, and is often used as a generally lower cost alternative to borrowing from banks or other institutions. The paper is usually sold to institutional investors, who desire to purchase CP as one form of short term money market investment. To the issuer CP provides debt management flexibility. Because commercial paper maturities don't exceed nine months and proceeds are typically used only for current transactions, the notes are exempt from registration with the United States Securities and Exchange Commission. 