Definition of special purpose vehicle/entity (SPV/SPE)

a type of corporate entity or limited partnership created for a specific transaction or business, especially one unrelated to a company's main business. Their losses and risks generally are not recorded on a company's balance sheet. The SPV/SPE is usually a subsidiary company with an asset/liability structure and legal status that makes its obligations secure even if the parent company goes bankrupt. A company can use such an entity to finance a large project without placing the entire firm at risk. The problem is that, due to accounting loopholes, these vehicles became a way for companies to conceal debt. Essentially, it looks like the company has no liability when they really do. As the Enron bankruptcy showed, if things go wrong, the results can be devastating.