What did Weinberg Capital Do?
The Weinberg Capital, the ABCP programme sponsored by LBBW, entered into a number of agreements to allow for the issuance and settlement of ABCP using distributed ledger technology (DLT) based on the Corda platform.
The first commercial paper issued on the Weinberg Capital DLT platform was issued on 14 February 2019 and matured on 19 February 2019. This CP was therefore not only issued but also redeemed using blockchain technology. The operation was done without using a parallel paper-based process as a fall-back.
Why does Distributed Ledger Technology impact ABCP ratings?
Notes issued and settled using the distributed ledger technology (DLT) rank pari passu and benefit from the same security as other ABCP notes. As a result, their credit rating remains unaffected. This was the conclusion Moody's arrived at in the context of ABCP issued by Weinberg Capital. In particular the rating agency said; "the DLT ABCP notes benefit from the full liquidity support provided by the liquidity bank and indemnity by the programme administrator. Landesbank Baden-Wuerttemberg (LBBW, Aa3/P-1, Aa3(cr)/P-1(cr)) continues to act as liquidity bank, as well as the programme administrator through LBBW's London branch." You can read the full press release from Moody's here.
What does DLT mean for the CP Market?
Weinberg's exercise paves the way for other CP programmes to also use Distributed Ledger Technology. DLT has the ability to reduce settlement times for commercial paper dramatically, from approximately two trading days to less than an hour. Real time settlement is key component for liquid money markets. But whether the market will follow remains to be seen. Some issuers may well object to the costs of converting their well functioning programmes. Whilst it is fine running an exercise with technology and known market parties, how does that look when the investor is not known by the issuer? Another issue to be addressed is the reporting of these trades. Whilst technology can do many things, fully replicating the mechanics of an already existing and well functioning market it cannot. The technical ability to provide real time settlement has been around for well over 10 years. It did however not completely change the market.
What is the size of the ABCP Market?
You can check the size the ABCP market using the Data Sheet tool.