What are Special Purpose Vehicles, SPV's

What are Special Purpose Vehicles, (SPV's)? SPV’s are created by a parent company to isolate specific assets, investments, debt or financing in a separate company, known as the SPV. SPV's are frequently used to undertake high-risk projects, isolating the parent company from any associated risks. How are SPV's commonly used? The SPV is usually formed as a Limited company LTD, limited liability partnership LLP, or trust and its structure varies depending on its intended purpose. SPV’s are commonly used by groups of investors to collate assets to collectively invest in a new business with a specific objective, such as purchasing land for a development project.

How do SPV's work with high-risk assets? SPV’s often operate as an affiliate of the parent company. The parent company sells specific assets to the SPV and the SPV attracts independent investment itself based on the assets it holds, acting as an indirect source of financing for the parent company. This approach is often used for high credit risk assets such as subprime mortgage loans. The SPV is used to organise and group the assets into tranches which are then sold to meet the specific interests of investors. Why would a parent company form an SPV? Companies would look to form an SPV for several reasons. Using an SPV with a separate corporate structure

provides risk insulation for the parent company against liabilities and helps protect the parent company’s assets. The SPV also provides an entity through which capital can be raised and regulatory freedom could be obtained to pursue projects with minimal financial exposure for the parent company. Visit www.cgincorporations.com For more information on Special Purpose Vehicles