Definition of Special-Purpose Vehicle (SPV)

limited-purpose organization that serves as a passthrough conduit in creating securities backed by mortgages, credit card and auto loans, leases, and other financial assets. An SPV can be a corporation, trust, partnership, or limited liability company. Most often, the SPV is set up as a trust. The SPV claims the legal rights of ownership of the assets transferred from the loan originator, and it has an arms-length relationship with the originator or sponsoring organization, meaning that assets held by the SPV are immune from creditors' claims should the sponsoring organization file for bankruptcy. Owing to this bankruptcy protection feature, an SPV is sometimes called a bankruptcy remote entity. A key question for an SPV sponsor is whether the SPV is reported off the sponsoring organization's balance sheet or is consolidated along with other assets of the sponsor. This accounting issue turns on the question of whether the transfer of receivables from the sponsor to the SPV is treated as a sale or a loan for a counting purposes. The Financial Accounting Standards Board defines a qualifying SPV (in Accounting Statement FAS 140) as an investment vehicle that is "demonstrably distinct" from the sponsor, has limited scope of activities, holds only "passive" receivables, and retains the right to sell noncash receivables if necessary to pay claims by investors holding the securitized assets. Also called special purpose entity.