A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
SPV
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| - | Abbreviation of Special Purposes Vehicle. Sometimes referred to as a Special Purpose Entity (SPE). An entity created for a specific, limited and sometimes temporary purpose. They are often limited companies or partnerships whose main purpose is to isolate another company from financial [[Risk|risk]]. Companies move assets to the SPV or use it to finance a large project to avoid exposing themselves to risk. SPVs are often used in the |[[Securitization|securitization]] of loans or other instruments. | + | 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|debt]] of another company is transferred. By transferring its debt off its [[Balance Sheet|balance sheet]] into an SPV a company is able to isolate itself from any [[Risk|risk]] that the debt might pose. SPVs are often used in the [[Securitization|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. |
| - | Often it is important that the SPE not be owned by the entity on whose behalf the SPE is being set up (the sponsor). For example, in the context of a loan securitization, if the SPE securitisation vehicle were owned or controlled by the bank whose loans were to be secured, the SPE would be consolidated with the rest of the bank's group for regulatory, accounting, and bankruptcy purposes, which would defeat the point of the securitisation. Therefore many SPEs are set up as 'orphan' companies with their shares settled on charitable trust and with professional directors provided by an administration company to ensure that there is no connection with the sponsor.
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| - | Contents [hide]
| + | See also: [[Off Balance Sheet]] |
| - | 1 Uses
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| - | 2 Abuses
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| - | 3 Accounting guidance
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| - | 4 See also
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| - | 5 Notes
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| - | 6 External links
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| - | [edit]Uses | + | |
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| - | Some of the reasons for creating special purpose entities are:
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| - | Securitization: SPEs are commonly used to securitise loans (or other receivables). For example, a bank may wish to issue a mortgage-backed security whose payments come from a pool of loans. However, these loans need to be legally separated from the other obligations of the bank. This is done by creating an SPE, and then transferring the loans from the bank to the SPE.
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Current revision
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