Special Purpose Vehicle (SPV)

SPVs, also called special purpose entities, are used in many financial structures. In securitization, a bank sells loans to an SPV, which issues securities backed by those loans. Because the SPV is legally separate, investors are protected if the bank fails, and the bank's creditors cannot claim the SPV's assets.

Other uses include financing large infrastructure projects, holding property, leasing aircraft, joint ventures and isolating particular risks or assets in acquisitions.

For example, a group building a wind farm might create an SPV to own the project and borrow against its future revenue, so that lenders rely on the project's cash flows rather than the parent companies' balance sheets.

SPVs have legitimate uses, but they have also been misused to hide debt and losses, most famously by Enron. Accounting rules now require companies to consolidate SPVs they control. SPVs are often located in places with favourable legal and tax regimes, which can attract scrutiny.