A special purpose vehicle (SPV) is a company that is created for a specific purpose, such as securitisation. SPVs are typically incorporated in a jurisdiction that has favourable tax laws and regulations for securitisation.
In the context of securitisation, an SPV is used to hold the assets that are being securitised. This is done to isolate the assets from the risks of the originator of the assets, such as bankruptcy. The SPV then issues securities to investors, who are repaid from the cash flows generated by the assets.
Some applications of SPVs in securitisation include:
- Securitisation of mortgages: SPVs are used to securitise mortgages, which are loans that are secured by property. This allows investors to purchase shares in a mortgage-backed security (MBS), which is a type of security that is backed by a pool of mortgages.
- Securitisation of receivables: SPVs are also used to securitise receivables, which are debts that are owed to a company. This allows investors to purchase shares in a receivable-backed security (RMBS), which is a type of security that is backed by a pool of receivables.
- Securitisation of other assets: SPVs can be used to securitise other types of assets, such as credit card receivables, car loans, and student loans.
Here are some of the benefits of using SPVs in securitisation:
- Isolation of assets: As mentioned above, SPVs can be used to isolate assets from the risks of the originator of the assets. This can reduce the risk to investors in the securitisation.
- Tax benefits: SPVs can be incorporated in jurisdictions that have favourable tax laws for securitisation. This can reduce the tax liability of the securitisation.
- Regulatory benefits: SPVs can be structured in a way that complies with the regulatory requirements of the jurisdiction in which they are incorporated. This can help to ensure that the securitisation is compliant with the law.