Special Purpose Vehicle (SPV) Definition

Adin Lykken

Reviewed by

Adin Lykken WSO Editorial Board

Expertise: Consulting | Private Equity

A Special-Purpose Vehicle, or SPV is a subsidiary of a company which is bankruptcy remote from the main organisation (i.e. protected even if the parent organisation goes bankrupt). The actions of a SPV are usually very tightly controlled and they are only allowed to finance, buy and sell assets.

The purpose of a Special-Purpose Vehicle is to allow the parent company to make highly leveraged or speculative investments without endangering the entire company. If the SPV goes bankrupt, it will not affect the parent company.

The problem, as occurred in the 2007-2008 crisis is that often the parent companies would have guaranteed liquidity lines to their SPV and when the SPV's started to lose money and lose access to credit, they would draw on the funds of their parent company at a time when the parent was already low on capital, thereby exacerbating the issues.

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Adin Lykken

Adin Lykken is a member of WSO Editorial Board which helps ensure the accuracy of content across top articles on Wall Street Oasis. Currently, Adin is an associate at Berkshire Partners. Prior to joining Berkshire Partners, Adin worked for just over three years at The Boston Consulting Group as an associate and consultant and previously interned for the Federal Reserve Board and the U.S. Senate. Adin graduated from Yale. This content was originally created by member WallStreetOasis.com and has evolved with the help of our mentors.