Special Purpose Vehicles - What You Need To Know
Post on 13,May 2020   4:00 AM
By - PolyEyes Staff
views 1792

Special Purpose Vehicles or SPVs are separate legal entities that are created by companies for a specific and well-defined lawful purpose. They act as a bankruptcy-remote for the parent company. In the event of a bankruptcy, the SPV will carry out obligations as the operations become restricted only to the financing and buying of specific projects and assets.

By knowing the right special purpose vehicle concepts and applications, you will be able to save your company a lot of money and keep it afloat in times of need.

Here’s why special purpose vehicles are important

  1. Mitigating Risk: Companies entail a sizable amount of risk in their regular operations. SPVs help these parent companies legally isolate all the risks in operations.
  2. Loan security: SPVs can securitize loans and other receivables and are one of the main reasons to create SPVs. A bank can separate loans from any other obligations by creating SPVs. It allows investors to receive many monetary benefits before stakeholders and debtors.
  3. Easy to transfer non-transferable assets: Transferring company assets are difficult for some reason, and an SPV is created to help own these assets. If a parent company wishes to transfer assets, they can sell off these SPVs as self-contained packages instead of splitting any of the assets, or even having various permits to do so.
  4. Holding the key properties of companies : SPVs are created to make them remain in charge of holding a property for a company. In the cases when property sales tend to become higher than the capital gains, then selling the SPV becomes a choice. It helps the parent company pay tax on capital gains instead of the proceeds that come from the property sales. These are some of the key special purpose vehicle concepts and applications.

Benefits of SPVs: The benefits that come with SPVs include

  • Easier access to any capital markets via SPVs for private companies as well as establishments.
  • Loan securitizing is one of the most common reasons for SPVs, and the interest rates that are payable on these bonds are lower compared to those offered on the corporate bonds of parent companies.
  • As the assets are held with the SPV, they remain secure and safe, and once the company faces any type of financial issue, it reduces the credit risk for stakeholders and investors as well.
  • Credit rating of special purpose vehicles remain good, and investors can buy bonds.
  • Both investors and shareholders have undiluted ownership.
  • The tax saving practices can be done with SPVs if they are created in tax haven countries.
  • SPVs make it easier for startups to make their cap tables simpler. Instead of dealing with several investors, one entity is all that’s needed to be dealt with. 

It becomes easier to protect a company once you understand the uses of special purpose vehicles effectively. Make sure you work with a legitimate body when creating this, as it could save you a lot of money in the event of a bankruptcy.


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