Companies often use asset-backed commercial paper to diversify their short-term investment options or to free up short-term cash. Additionally, purchasing ABCP can often help a company avoid or reduce the amount of taxes and fees it pays, as the paper typically carries a lower interest rate than bank loans and other corporate investment options.

Asset-backed commercial paper is attractive to investors because it is generally considered a safe investment, and often comes with higher yields than other types of investments. This is because ABCPs are backed by a company's receivables and/or other assets, making them less risky than other investment options. The risk of default on the investment is relatively low, as investors have recourse to the collateral in the event that the issuer cannot meet its obligations.

Asset-backed commercial paper investments must partner with an ABCP conduit, which is a special purpose vehicle (SPV) set up to facilitate the corporate funding activity. This ABCP conduit issues the commercial paper and holds the collateral, mitigating investor risk. When a company wants to issue ABCP, it must find an ABCP conduit willing to accept the company's collateral and receive the payments. The investment/loan agreement between the company and the conduit also spells out the requirements for the company to receive the payments, such as market conditions, hedging arrangements and other factors.

The market for ABCPs was disrupted in the wake of the 2008 financial crisis. Historically, ABCPs were bought and sold over the counter, or OTC. However, since the crisis, the market is much more regulated, with rules in place to protect both the company issuing the ABCP and the investor. These include rules for disclosure and transparency, credit ratings and liquidity support.

In conclusion, asset-backed commercial paper investments are an attractive option for companies looking for short-term liquidity and investors looking for safe, higher-yielding investments. It requires an ABCP conduit to facilitate the financing and regulation has increased since the 2008 financial crisis to ensure both the issuer and investor are protected.