SPV or Special Purpose Vehicle

An SPV is a newly-formed company that has been designed to keep all company-related investments secure and private. Regardless of the originator or Yieldstreet credit risk – SPVs are most commonly used as asset securitization.

Special Purpose Vehicles act as a separate legal entity that has been created by a company or organization. The use of an SPV has become more and more common in modern business. The use thereof is apparent for when a company goes bankrupt, the SPV can continue as normal.

Why create an SPV?

  • Lowers Financial Risk: New projects and assets acquired by the company can be diversified with the use of an SPV. This helps lower financial risk for those involved, and can equally distribute associated risk among investors.
  • Asset Protection and Transfer: Some business owners and company executives may establish an SPV for the sole purpose to transfer and protect company assets. Because certain assets can be difficult to transfer, or come under scrutiny an SPV can create a separation of assets.
  • Tax Purposes: Some companies set up their SPV in a designated tax-haven location. These tax havens offer attractive tax incentives for larger companies.
  • Loan Securitization: Companies looking to acquire additional loans or funding will create an SPV under which they can take out a new loan.

Risks for creating an SPV

Although some may see an SPV as beneficial, associated risks can include:

  • Lax regulation: Assets not directly associated with the parent company can influence the overall financial health of the parent company, especially when reviewing their balance sheet.
  • Underperformance: If an SPV underperforms, this can directly influence the parent company’s overall access to better capital markets.
  • Credit Risk: If an SPV does not perform as desired, the credit quality of the partnering company may be diminished.

Find out more: What you need to know about SPVs.

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