Special Purpose Vehicle is also known as Special Purpose Entity is a subsidiary created by the parent company to isolate financial risk.
This subsidiary is a separate legal entity with its own balance sheet.
SPV is also called Bankruptcy Remote Entity. If the parent company goes bankrupt, the SPV will not have obligations of bankruptcy towards itself.
It may be used to undertake a risky venture while reducing any negative financial impact upon the parent company and its investors.
A few benefits of SPVs are isolation from bankruptcy, financial risk mitigation and ease of doing business, and raising capital.
Investors should assess the financials of parent companies and SPVs before investing.
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