Backup Line
Barron's Banking Dictionary:
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Backup Line
Bank line of credit serving as an alternate source of liquidity for an issuer of commercial paper, and a source of credit for the buyer, or purchaser in the event the issuer is unable to rollover the paper at maturity. The amount of backup varies from as little as 50% for some AAA rated issuers to 100% for lower quality paper. Ordinarily, the line is a Confirmed Letter of Credit or a contractual facility (revolving credit agreement or revolving underwriting facility) in place at issue time. Or, it may be cash set aside by the issuer. A bank line typically is a Swing Line. Bank credit lines are paid for by compensating balances or by straight fee.
Investopedia Financial Dictionary:
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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.
Investopedia Says:
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.
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Barron's Banking Dictionary
Dictionary of Banking Terms. Copyright © 2006 by Barron's Educational Series, Inc. All rights reserved.
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