GE to Test Fed's Commercial Paper Funding Facility

General Electric, the parent company of CNBC, plans to test the Federal Reserve's Commercial Paper Funding Facility when it opens on Monday, October 27th.

GE , the biggest issuer of commercial paper, says it continues to fund its short-term debt needs without disruption.

The following is from a note General Electric's Treasury sent to its commercial paper holders. A direct issuer, the company sells the short-term debt directly to clients.

"We join with commercial paper issuers and investors in applauding the launch of the Commercial Paper Funding Facility by the Federal Reserve. The CPFF adds a liquidity backstop to this $1.5 trillion market helping to reduce rollover risk for participating issuers and providing support for a more active secondary market. We believe the CPFF will strengthen confidence in the prime commercial paper market and encourage more term buying.

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As of today, all of the U.S. issuers of commercial paper in the GE family are registered and approved to access the facility, which goes live October 27. Each of these issuers is rated A-1+ by Standard and Poor's and P-1 by Moody's Investor Service."

The issuers are General Electric Company, General Electric Capital Services and General Electric Capital Corporation.

GE spokesman Russell Wilkerson said the firm is accessing the facility primarily to support GE's commercial paper investors who need added liquidity. Customers like pension funds, state and local governments who need to sell the short term debt in order to raise cash.

Wilkerson said General Electric can buy the debt back from these investors to provide them with much needed cash. General Electric will in turn fund these purchases by using the Fed's facility which has been set up to buy 90 day commercial paper from prime, or highly rated issuers.

(Watch the accompanying video for more on GE's plan to use the Fed's commercial paper facility...)

The goal of the Fed's facility to improve liquidity in this market which has been hard hit by the credit crisis, and extend the debt maturities. Much of the recently issued commercial paper market has had maturities of one to seven days, a sign of unwillingness among clients to wait any longer to be repaid. As short-term debt used to fund a company's day to day operations, maturities on commercial paper range from a day to 270 days.

With $88 billion of commercial paper outstanding, General Electric is the biggest issuer of this short-term debt. A person close to the firm told CNBC that GE was "encouraged" by regulators to access the facility, expecting if the biggest issuer uses the facility, it will raise confidence in, and destigmatize the process.

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