By Dena Aubin
NEW YORK, Jan 24 (Reuters) - Corporate America's use of secured commercial paper shrank last year for the first time, hurt by a weak economy and worries about stiffer accounting rules, Moody's Investors Service said on Friday.
U.S. asset-backed commercial paper outstanding fell 2.6 percent to $726 billion at the end of 2002 from $745 billion the year before, Moody's said.
"After more than a decade of exuberant growth, 2002 was a full-blown mid-life crisis for a suddenly mature market," Sam Pilcer, a Moody's managing director, wrote. Both the total dollar value and the number of asset-backed commercial paper programs declined and innovations were scarce, he said.
A weak economy lessened funding needs in 2002, but as the economy picks up, companies will likely increase their issuance of commercial paper, Moody's said.
Commercial paper is a type of loan that matures in 270 days or fewer. Many companies use it for basic daily needs ranging from inventories to payrolls because it is easier to sell than bonds and borrowing costs are lower.
Companies have increasingly turned to asset-backed commercial paper in recent years as rating downgrades and defaults dogged the traditional, unsecured commercial paper market.
Automaker Ford Motor Co. set up a new asset-backed commercial paper program in 2002 after its credit ratings were downgraded and interest rates on its long-term unsecured debt soared.
ACCOUNTING CHANGES SLOW DEALS
Asset-backed commercial paper accounted for about 54 percent of the $1.325 trillion commercial paper market at the end of 2002, Moody's said.
While unsecured debt saw record downgrades last year, "asset-backed commercial paper continued its sterling track record of virtually no downgrades and no defaults," Moody's said.
Yet uncertainty about new accounting rules from the Financial Accounting Standards Board discouraged many new deals, Moody's said.
FASB, which sets U.S. accounting standards, this month approved new rules on so-called special purpose entities that some companies used to shift debt off their books.
The rules were meant to end abuse of off-balance-sheet financing used by companies such as Enron Corp. , but also affected some banks that buy companies' assets and issue commercial paper through special purpose entities.
The new accounting rules could likely be accommodated by amending existing commercial paper programs, Moody's said.
"Our expectation is that the legislation's final results will be manageable," it said, "and that the U.S. asset-backed commercial paper market will continue to be a significant source of short-term financing."
The European asset-backed commercial paper market grew to $178 billion in 2002, up 32 percent from $135 billion in 2001, Moody's said. Europe's market is expected to grow faster than the U.S. as the volume of secured debt relative to the economy catches up to U.S. levels, it said.