Commercial paper consists of short term unsecured promissory notes issued by finance companies and certain industrial concerns. Commercial paper can be sold either directly or through dealers. Many large scale companies have found it profitable because of the volume, to sell their papers directly to investors, thus bypassing dealers. Among companies selling papers on this basis are General Electric Credit Corporation and the Ford Motor Credit Company. Paper sold through dealers is issued by industrial companies and smaller finance companies. Dealers very carefully screen the creditworthiness of potential issuers. In a sense, dealers stand behind the paper they place with investors.
Rates on commercial paper are somewhat higher than rates on treasury bills of the maturity and about the same as the rates available on banker’s acceptance. Paper sold directly generally commands a lower yield than a paper sold through dealers. Usually, commercial papers are sold on discount basis, and maturity generally ranges from 30 -270 days. Most paper is held to maturity, for there is essentially no secondary market.0ften direct sellers of commercial papers will repurchase the paper on request… arrangements may also be made through dealers for repurchase of paper sold through them. Commercial paper is sold only in large denominations, usually $100,000.
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