Special Purpose Vehicle/Entity - SPV/SPE

AAA

DEFINITION of 'Special Purpose Vehicle/Entity - SPV/SPE'

1. 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."

INVESTOPEDIA EXPLAINS '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. Variable Interest Entity - VIE

    An entity (investee) in which the investor has obtained less ...
  2. Bankruptcy

    A legal proceeding involving a person or business that is unable ...
  3. Credit

    1. A contractual agreement in which a borrower receives something ...
  4. Off-Balance-Sheet Financing

    A form of financing in which large capital expenditures are kept ...
  5. Project Finance

    Defined by the International Project Finance Association (IPFA) ...
  6. Subsidiary

    A company whose voting stock is more than 50% controlled by another ...
Related Articles
  1. Investing In Securitized Products
    Insurance

    Investing In Securitized Products

  2. Off-Balance-Sheet Entities: An Introduction
    Investing

    Off-Balance-Sheet Entities: An Introduction

  3. Investing In Emerging Market Debt
    Personal Finance

    Investing In Emerging Market Debt

  4. Common Clues Of Financial Statement ...
    Retirement

    Common Clues Of Financial Statement ...

comments powered by Disqus
Hot Definitions
  1. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  2. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  3. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  4. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  5. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  6. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
Trading Center