Definition
Belgian Commercial Paper
Belgian Commercial Paper or a BCP is a short-term, unsecured debt instrument issued by corporations, financial institutions, or government entities in Belgium.
Companies use BCPs to meet their short-term financing needs, such as funding working capital requirements, managing temporary cash flow imbalances, or covering other immediate financial obligations.
- Maturity: from 1 to 364 days
- Currencies: EUR, USD, GBP, JPY, etc.
- Nominal amount: legal minimum face value of BCP is 250,000€ or the equivalent in the relevant foreign currency determined at the time of issuance.
- Rate: fixed or variable (indexed to EURIBOR for example). The rate is freely negotiated between the issuer and the investor.
Presentation of the actors
All of them enjoy market stability, liquidity and competitive financing terms.
Issuers
To meet their treasury requirements, such as investments and current expenses, companies utilize Belgian commercial paper as a financing tool. Issuers in the BPC market fall into three categories: financial institutions, corporates, and public issuers.
Intermediaries
Just like with any other debt market, intermediaries play a pivotal role in maintaining market liquidity in the BPC market. Intermediaries bridge the financing needs of BCP issuers with the investment interests of buyers, facilitating negotiations and characteristics of the issuance.
Two types of intermediaries in the BPC market:
- Dealers, typically banks, serve as primary intermediaries. They may either resell the paper immediately to an investor or retain it in their book for future resale.
- Brokers facilitate transactions between issuers and investors, enabling brokerage without holding commercial papers themselves.
Investors
The most frequent investors in BCPs are money market funds and institutional investors. Money market funds are investment vehicles that focus on short-term, highly liquid, and low-risk securities, making BCPs an attractive option for their investment portfolios. These funds are often managed by asset management companies that invest on behalf of individual investors or corporate clients.
Institutional investors, such as pension funds, insurance companies, and other large financial institutions, also invest in BCPs as part of their short-term investment strategy as the short-term nature of BCPs aligns well with the liquidity needs of these institutions.
Issuing and Paying Agent
The Issuing Paying Agent (IPA) collects transaction details from issuers, dealers, and investors, and handles all cash management for their clients, encompassing issuances and repayments.
Rating agencies
Rating agencies evaluate issuer credit risk to assist in rate negotiations. Their reports pertain to the program, and while some companies might lack a rating, they may still have an established program.
Guarantors
Guarantors step in to ensure repayment if an issuer defaults, especially when the issuer lacks a rating.
Arrangers
Arrangers provide support and expertise to issuers, especially with regard to specific program types. They are specialized credit institutions.
Clearers
Euroclear Belgium (formerly CIK) and Clearstream are responsible for the settlement of Belgian commercial paper transactions.
Regulator
The Belgian commercial paper market is primarily regulated by the Financial Services and Markets Authority (FSMA) in Belgium, alongside the National Bank of Belgium (NBB) which supervises the entire Belgian financial sector.
Process of creation of a Belgian CP
1- Introduction to the market
To become active in the Belgium Commercial Paper market, a new issuer must first set up its program. This program can be public and include the company’s terms of issuance, such as its ratings, guarantors, paying agents, etc.
A new issuer is often accompanied by an arranger that helps better understand the market and take the first steps on it. This arranger can be an advisory firm or a market player (an issuing and paying agent or a dealer/broker).
2- Expression of need and negotiation
An issuer will contact the dealers/brokers of its choice indicating the amount he wishes to borrow and a desired rate.
Depending on the liquidity of the market, the negotiations can be a lasting process, and each characteristic of a BCP can be renegotiated.
Once the agreement on terms is achieved, intermediaries either buy the paper to resell it to investors or keep it in their books.
Requests and offers may also come from investors or dealers/brokers who wish to buy BCP even if the issuer does not currently sell it.
3- Debt instrument creation
The issuers will send a confirmation to their IPA. The latter will request an ISIN code from clearers.
Different confirmations are also sent between the back offices of the various parties of the paper (investors, dealer, broker, etc)
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