What is ‘Backup Line’
A line of credit used by a bank to cover any issue of commercial paper for which financing from new paper may not be available. A backup line of credit effectively provides an alternate source of liquidity for the issuer and a source of credit for the purchaser. Backup lines usually take the form of a confirmed letter of credit or contractual facility.
Explaining ‘Backup Line’
The amount of backup line generally ranges from 50 to 100%, depending upon the quality of the paper issued. Lower grade paper usually get greater coverage and vice-versa. These lines of credit are usually paid for with either compensating balances or else with a simple straight fee.
Further Reading
- Are banks still important for financing large businesses? – papers.ssrn.com [PDF]
- Bank lines of credit in corporate finance: An empirical analysis – academic.oup.com [PDF]
- Bank lending during the financial crisis of 2008 – www.sciencedirect.com [PDF]
- The impact of financial intermediation on economic growth: The Nigerian perspective – papers.ssrn.com [PDF]
- Getting up to speed on the financial crisis: a one-weekend-reader's guide – www.aeaweb.org [PDF]
- A Backup Quarterback View of Mezzanine Finance – onlinelibrary.wiley.com [PDF]
- Structured investment vehicles: the unintended consequence of financial innovation: some reasonable ideas and objectives combined to have unexpected effects – go.gale.com [PDF]
- Liquidity risk and syndicate structure – www.sciencedirect.com [PDF]
