Special Purpose Vehicle/Entity - SPV/SPE

Loading the player...

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.

RELATED TERMS
  1. Subsidiary

    A company whose voting stock is more than 50% controlled by another ...
  2. Price Swap Derivative

    A derivative transaction in which one party guarantees a fixed ...
  3. Holding Company

    A parent corporation that owns enough voting stock in another ...
  4. Enronomics

    A fraudulent accounting technique that involves a parent company ...
  5. Wholly Owned Subsidiary

    A company whose common stock is 100% owned by another company, ...
  6. Reference Obligation

    The specific underlying debt upon which a credit derivative is ...
Related Articles
  1. Investing

    What's a Subsidiary?

    A subsidiary is a corporation owned 50% or more by another corporation. The owning corporation is usually called the parent or holding company. A company that is 100% owned and controlled by ...
  2. Investing

    How Special Purpose Entities Help Fight Risk

    A special purpose entity, sometimes called a special purpose vehicle, is a legal entity created for one very limited, particular task. Typically, SPEs are subsidiaries of a larger corporation.
  3. Investing

    The Enron Collapse: A Look Back

    This was one of the most complex bankruptcies in U.S. history. Ten years later, we look back at what happened and how it permanently impacted the financial markets.
  4. Markets

    What is a Wholly Owned Subsidiary?

    A company whose common stock is 100% owned by another company, called the parent company.
  5. Investing

    What's a Holding Company?

    A holding company is a corporation that owns enough voting stock in another company to control its management and policies.
  6. Investing

    Off-Balance-Sheet Entities: An Introduction

    The theory and practice of these entities varies greatly. Investors need to learn what they're getting into.
  7. Investing

    Why Enron Collapsed

    Enron’s collapse is a classic example of greed gone wrong.
  8. Investing

    Enron: The Fall Of A Wall Street Darling

    Enron is a classic example of greed gone wrong and how investors were led astray.
  9. Investing

    Explaining Affiliate, Associate And Subsidiary

    Affiliate, associate and subsidiary are all terms referring to the degree of ownership a parent company holds in another company.
  10. Managing Wealth

    Examples Of Asset/Liability Management

    In its simplest form, asset/liability management entails managing assets and cash inflows to satisfy various obligations; however, it's rarely that simple.
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. Are domestic and foreign subsidiaries included on a company's financial statements?

    A subsidiary is a company that is controlled by another 'parent' company. The subsidiary acts and operates like its own entity ... Read Answer >>
  4. What is the difference between a subsidiary and a wholly owned subsidiary?

    Understand the primary differences between a subsidiary company and a wholly owned subsidiary, and their relationship to ... Read Answer >>
  5. How does off balance sheet financing work?

    Read about the use of off-balance-sheet financing in corporate America, including the use of special purpose vehicles to ... Read Answer >>
  6. 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 >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center