Moneyzine
Contents
/Personal Finance/Special Purpose Vehicle (Special Purpose Entity)

Special Purpose Vehicle (Special Purpose Entity)

Moneyzine Editor
Author: 
Moneyzine Editor
1 mins
September 25th, 2023
Advertiser Disclosure

Definition

The term special purpose vehicle refers to a legal entity created to fulfill a specific objective. Special purpose vehicles are oftentimes limited liability corporations or limited partnerships.

Explanation

Also known as special purpose entities, a special purpose vehicle (SPV) is a legal entity that is able to fulfill its obligations to investors even if the originating company files for bankruptcy. Oftentimes a SPV is leveraged to lower a company's overall risk profile since they are frequently used to remove assets off the originator's balance sheet. This type of arrangement can help lower risk and provide greater flexibility. For example, a financial institution can create a SPV to move a portfolio of loans off its balance sheet. By doing so, it will lower its overall risk and maintain or raise its credit rating.

A company may also create a SPV when financing a large capital project. This allows the company to enter into relatively large projects without placing the entire company at risk of default. SPVs play a critical role in the process of securitization, which allows credit originators (lenders) to remove some of the risk in their portfolio and move it to another party. The company first identifies income producing assets they wish to remove from their balance sheet and move over to the SPV. Interest bearing securities, funded by the cash generating assets, are then issued by the SPV to investors.

Related Terms

Related Content

  • What Can Help You Meet Your Budget While Shopping for Important Items?
    Budgeting while ensuring you don't compromise on quality can seem daunting. Whether filling your pantry, updating your wardrobe, or keeping up with the latest tech, smart shopping strategies are crucial for keeping your finances in check.
    April 2nd, 2024
  • How to Make a Million Dollars in 10 Years
    Truthfully, this title should actually be “How to Make a Million Dollars in 10 Years Without Going Into Debt", but that is just getting a little too winded for my liking. It’s true though!
    November 5th, 2024
  • How to Apply Maslow’s Hierarchy to Your Money This Year
    You might vaguely remember your psychology teacher talking about Maslow. He pointed at a picture of a triangle as you nodded off in the back of the school room.
    November 5th, 2024
  • How to Tackle Multiple Savings Goals
    When there’s only so much money to go around, there are often multiple savings goals competing for your money. Think of the young professional who’d like to get a more reliable car, buy a house, and save for retirement. Or consider the young family that’s saving for college, retirement, and a bigger house.
    March 22nd, 2024
  • The Countdown to Early Retirement: 10 Expenses to Eliminate
    Dreaming of waving goodbye to the daily grind five years ahead of schedule? The road to early retirement is paved with more than good intentions; it requires a meticulously crafted strategy with surprising twists. It's not solely about what you should be doing—like diligently saving a portion of your income or investing wisely—but also about what you need to stop doing.
    March 22nd, 2024

Contributors

Moneyzine Editor
The Moneyzine editorial team consists of writers and content specialists with diverse backgrounds.
Moneyzine 2024. All Rights Reserved.