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Special purpose vehicle (SPV)

AnalyticsTrade Team
AnalyticsTrade Team Last updated on 26 Apr 2023

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Special Purpose Vehicle (SPV)

A special purpose vehicle (SPV) is a legal entity created to fulfill a specific, narrow, or temporary purpose. SPVs are typically used to isolate financial risk by segregating assets and liabilities and to facilitate complex financial transactions. SPVs are often used in structured finance, securitization, and project finance transactions.

History of Special Purpose Vehicle

The concept of a special purpose vehicle has been around since the early 1900s. The first SPV was created in the United States in the 1920s to finance the construction of a bridge. Since then, SPVs have been used in a variety of transactions, including the financing of infrastructure projects, the securitization of assets, and the creation of joint ventures. SPVs are also used in the banking industry to facilitate the transfer of assets and liabilities between banks.

In recent years, SPVs have become increasingly popular as a way to manage risk and facilitate complex financial transactions. SPVs are often used in structured finance transactions, such as asset-backed securities, to isolate the assets and liabilities of the issuer from those of the investors. SPVs are also used in project finance transactions to isolate the project from the sponsorโ€™s other assets and liabilities.

Comparison of SPV vs. Other Entities

Entity Purpose Risk Isolation
SPV Specific, narrow, or temporary purpose Yes
Corporation General business purpose No
Trust Holding assets for beneficiaries Yes
Partnership Conducting business with multiple owners No

Summary

A special purpose vehicle (SPV) is a legal entity created to fulfill a specific, narrow, or temporary purpose. SPVs are typically used to isolate financial risk by segregating assets and liabilities and to facilitate complex financial transactions. SPVs are often used in structured finance, securitization, and project finance transactions. For more information about SPVs, visit the websites of the Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the International Swaps and Derivatives Association.

See Also

  • Asset-Backed Security
  • Securitization
  • Project Finance
  • Structured Finance
  • Trust
  • Corporation
  • Partnership
  • Limited Liability Company
  • Joint Venture
  • Financial Risk Management

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