Special Purpose Vehicle/Entity - SPV/SPE

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What is a 'Special Purpose Vehicle/Entity - SPV/SPE'

A special purpose vehicle/entity (SPV/SPE) is also referred to as a "bankruptcy-remote entity" whose operations are limited to the acquisition and financing of specific assets. The SPV is usually a subsidiary company with an asset/liability structure and legal status that makes its obligations secure even if the parent company goes bankrupt.

2. A subsidiary corporation designed to serve as a counterparty for swaps and other credit sensitive derivative instruments. Also called a "derivatives product company."

BREAKING DOWN 'Special Purpose Vehicle/Entity - SPV/SPE'

Thanks to Enron, SPVs/SPEs are household words. These entities aren't all bad though. They were originally (and still are) used to isolate financial risk.

A corporation can use such a vehicle to finance a large project without putting the entire firm at risk. Problem is, due to accounting loopholes, these vehicles became a way for CFOs to hide debt. Essentially, it looks like the company doesn't have a liability when they really do. As we saw with the Enron bankruptcy, if things go wrong, the results can be devastating.

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RELATED FAQS
  1. What role do SPVs / SPEs play in public-private partnerships?

    Find out why governments and private actors prefer to use special purpose vehicles, or SPVs, when they undertake public-private ... Read Answer >>
  2. What is the most typical holding in an SPV?

    Learn why property-based investments are the most common kind of holding within a Special Purpose Vehicle, or SPV, and how ... Read Answer >>
  3. What is the difference between a subsidiary and a sister company?

    Discover the differences between subsidiary companies and sister companies, and understand how both are related to parent ... Read Answer >>
  4. How do wholly owned subsidiaries operate in the European Union?

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  5. How did Enron use off-balance-sheet items to hide huge debts and toxic assets?

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  6. How is taxation treated for both the parent and subsidiary company during a spinoff?

    Learn how the potential tax implications of a spinoff can affect both parent and subsidiary companies and how taxes may be ... Read Answer >>
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