special purpose enterprise

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Special Purpose Enterprise

A subsidiary created for a specific purpose. A common example of a special purpose enterprise occurs often when a company wishes to use certain assets as collateral on a loan but does not wish to directly acquire more debt. It may spin off a special purpose enterprise and sell it those assets, which are then used as collateral on a loan. The debt then belongs to the SPE rather than the company. Some regulations govern special purpose enterprises so that they do not become havens for bad debt or unprofitable assets designed to make the parent company's financial situation look better than it really is. See also: Aggressive accounting.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

special purpose enterprise (SPE)

A semi-independent business organization formed to carry out a specific function. For example, a company might form an SPE to purchase some of the firm's assets. The SPE uses the assets as collateral for a loan with proceeds going to pay the company for the purchased assets. The assets and corresponding debt become balance sheet entries of the SPE, not the corporation. Companies that wish to eliminate troublesome assets and/or debts from their financial statements sometimes abuse the use of special purpose enterprises.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
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