What typically backs the issuance of Commercial Paper?

The issuance of Commercial Paper is typically backed by bank lines of credit, which serves as a safety net for the issuing company. Companies issue Commercial Paper as a short-term debt instrument to meet immediate liquidity needs, and these lines of credit provide assurance that, should the company be unable to roll over its debt or meet its obligations, it has access to funds from the bank to cover those commitments. This connection to bank lines of credit not only helps reassure investors but also facilitates a smoother borrowing process, allowing firms to take advantage of favorable short-term market conditions.

The other options are not standard backing methods for Commercial Paper. Government contracts and agreements, while they may provide revenue or business opportunities, don’t directly secure Commercial Paper. A pledge of future tax revenues is more applicable to government bonds rather than corporate debt instruments. Private investor contributions also don't play a role in underwriting Commercial Paper, as it is more a reflection of the company's creditworthiness supported by bank credit rather than direct investment from individuals.