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Abbreviation of Special Purpose Vehicle. Sometimes referred to as a Special Purpose Entity (SPE). SPVs are entities created for a specific, limited and normally temporary purpose. They are limited companies or partnerships to which the debt of another company is transferred. By transferring its debt off its balance sheet into an SPV a company is able to isolate itself from any risk that the debt might pose. SPVs are often used in the securitization of loans or other instruments. For example, a bank may issue a mortgage-backed security (MBS), the income from which is derived from repayments from a pool of mortgage loans. The bank may wish to legally separate itself from the loans and does so by setting up an SPV and transferring the loans to it.
See also: Off Balance Sheet