special-purpose entity


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Special-Purpose Entity

A financing technique in which a company decreases its risk by creating separate partnerships, rather than subsidiaries, for certain holdings and solicits outside investors to take on the risk. In order to qualify as a special-purpose entity, whose financial results are not carried on the company's books, the unit must meet strict accounting guidelines. Compare to subsidary.

Special Purpose Vehicle

A subsidiary of a company that attempts to isolate risk from the parent company by maintaining its assets and liabilities on a completely separate balance sheet. It can be used as a counterparty in swap transactions, or the parent company can finance a project through an SPV that would put the parent company in danger of bankruptcy if the project does not perform well. During the Enron scandal, SPVs developed notoriety because Enron hid much of its debt in SPVs.

special-purpose entity (SPE)

Usually a limited liability company formed in order to separate profits,losses,and risks from the corporation that created it.The most spectacular example of the use of special-purpose entities was Enron, which used SPEs to siphon off losses and “cook the books.” The use of SPEs is legitimate and necessary in many circumstances, though. (Do not confuse with single-purpose entity, also abbreviated as SPE, which is more specialized and is typically a lender requirement before it will extend mortgage financing on large projects.) Also called special-purpose vehicle.

References in periodicals archive ?
If A forms a corporation as a special-purpose entity and completes the exchange, the transaction would most likely result in a taxable gain of $7,000,000, because a different taxpayer (the corporation) would have completed the exchange.
Although the securities are perpetual pass-through securities, they are expected to have characteristics similar to 30-year fixed-rate cumulative preferred securities that are noncallable for 10 years based on the nature of the assets held by the special-purpose entity, except in certain extraordinary circumstances.
Yorktown Capital is a Delaware limited liability company organized as a bankruptcy-remote, special-purpose entity, and is administered by the Bank of America.
THPA Finance, a special-purpose entity, depends on cash flow from the Tees and Hartlepool Port and associated businesses to serve its debt.
The affirmations follow the restructuring of the CP programs to treat each conduit as a qualified special-purpose entity for accounting purposes.
By imposing the special-purpose entity between the investor and the credit default swap counterparty, and by providing structural supports within that framework, investors do not need to have counterparty limits in place with the swap providers.