Special Purpose Vehicle (SPV)
A special purpose vehicle is a legal entity created for one narrow purpose, such as holding a set of assets or issuing securities, and kept separate from its sponsor so that its assets and liabilities are ring-fenced from the sponsor's.
Also called: SPV · special purpose entity · SPE · issuing vehicle
An SPV is usually a company, trust or partnership with no employees and no business other than the transaction it was formed for. Its constitutional documents limit what it can do, independent directors or a trustee sit on it, and its shares are often held on charitable trust or by a corporate services provider so that the sponsor does not own it outright. The point is separation: if the sponsor fails, its creditors should not be able to reach the SPV's assets, and if the transaction fails, the loss stays inside the vehicle.
SPVs are the workhorse of structured finance. In a securitisation the originator sells loans to an SPV in a true sale, and the SPV funds the purchase by issuing notes to investors. In sukuk, the SPV buys or leases assets from the originator and issues certificates representing ownership of them; an ijara sukuk leases the asset back to the originator. Shipping companies hold each vessel in its own SPV, project finance places a power station or toll road in one, and funds use them to hold particular investments.
For banks and payments firms, SPVs raise ordinary onboarding questions in a sharper form. An entity with no staff, no trading history and nominee directors looks like a shell company until the bank sees the transaction documents and its beneficial owners. The legitimate SPV has a clear purpose, a documented flow of funds and a sponsor who can explain both.
In practice
Separation is a matter of law and documents, not labels. A court or regulator may look through an SPV that is controlled, funded or mixed with its sponsor's business, and accounting rules may consolidate it onto the sponsor's balance sheet.
Example
A bank sells £500 million of car loans to an SPV it does not own. The SPV issues £500 million of notes, pays the bank, and passes borrowers' repayments through to noteholders. If the bank later fails, the car loans belong to the SPV and the noteholders, not to the bank's creditors.
Learn more on Money Wiki
This page gives the short answer. Money Wiki has a longer guide to Special Purpose Vehicle, with more detail and background.
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Commonly confused with
| Term | How it differs |
|---|---|
| Shell company | A shell company has no significant operations or assets, whatever its purpose. An SPV is defined by a single documented purpose and usually holds real assets, although on paper it can look similar. |
See also
- True SaleA true sale is a transfer of assets that is effective in law as an outright sale, so the assets leave the seller's estate and cannot be claimed by the seller's creditors if it becomes insolvent. It is the foundation of securitisation.
- Asset-Backed SukukAsset-backed sukuk are sukuk whose underlying assets are transferred to the issuing vehicle in a true sale, so investors own and can look to those assets for repayment, rather than relying only on the originator's promise to pay.
- SukukSukuk are certificates representing undivided ownership interests in assets, usufructs, services or ventures, with returns paid from what those underlying interests generate. "Islamic bond" is useful shorthand but not an accurate legal description.
- Shell CompanyA shell company is a company with no significant operations, staff or physical presence of its own, often nothing beyond a registered address, that exists to hold assets, own other companies or carry out transactions. Many are legitimate, but their opacity makes them useful to launderers.
- Ultimate Beneficial OwnerThe ultimate beneficial owner is the natural person who ultimately owns or controls a customer, identified by tracing ownership up through holding companies, trusts and nominees. Twenty-five percent is the common anchor in the United States, the United Kingdom and the European Union, but each states it differently and control is tested alongside it.