What Is a Special Purpose Vehicle (SPV)?
A special purpose vehicle, also called a special purpose entity (SPE), is a subsidiary created by a parent company to isolate financial risk. Its legal status as a separate company makes its obligations secure even if the parent company goes bankrupt.
- An SPV is created as a separate company with its own balance sheet.
- It may be used to undertake a risky venture while reducing any negative financial impact upon the parent company and its investors.
- Alternately, the SPV may be a holding company for the securitization of debt.
For this reason, a special purpose vehicle is sometimes called a bankruptcy-remote entity.
If accounting loopholes are exploited, these vehicles can become a financially devastating way to hide company debt, as seen in 2001 in the Enron scandal.
Understanding the SPV
A parent company creates an SPV to isolate or securitize assets