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 ?
Portfolio lenders that want to make their portfolio loans conduit-ready often do not focus on the special-purpose entity provisions that are required of a borrower in conduit loans.
Because of the inherent flexibility in forming and operating a special-purpose entity, there are several other ownership considerations to address in its formation.
The bank may create extremely complicated transactions to accommodate a particular customer's needs and, says Butterfield, many of these have the features of a special-purpose entity or a special-purpose trust.
If the owner of a special-purpose entity goes into bankruptcy on unrelated debt, the lenders hope the separate entity will remain separate and not become part of the bankruptcy court's jurisdiction.
The financing includes the issuance of warrants to purchase Interpublic common stock, as well as the issuance of notes by the special-purpose entity that is providing the liquidity facility.
In addition, if a special-purpose entity has been formed to hold the 1% interest (e.