Special Purpose Vehicle (SPV)

Special purpose vehicle/entity is a bankruptcy-remote entity that a parent company uses to isolate or securitize assets and it often holds these off-balance sheet. Some also call this a “bankruptcy-remote entity” or “variable interest entities” since its operations are limited to the acquisition and financing of specific assets as a method of isolating risk. A special purpose vehicle/entity is a subsidiary company with an asset/liability structure and legal status that makes its obligations secure, even if the parent company goes bankrupt. An SPV/SPE is also a subsidiary corporation designed to serve as a counterparty for swaps and other credit-sensitive derivative instruments. Although the company uses SPVs/SPEs to isolate financial risk, due to accounting loopholes, these vehicles may become a financially devastating way for CFOs to hide debt, as with the Enron bankruptcy.