SPECIA

L
PURPOS
VEHICL
E
(SPV) E

Introduction
Negative Connotation
1994: Tower Financial Crisis

Market Background
Timeline

Features and uses of SPV

Securitisation
Asset transfer
Financing
Risk sharing
Raising capital

How are Investors

Classified?

Key benefits to Sponsors

Asset Ownership
Minimal red tape
Tax benefits
Legal protection
Isolation of Financial Risk
Meeting regulatory requirements
Freedom of jurisdiction

Risks of a SPV

Reputational Risk
Signalling Effect
Liquidity and Funding Risk
Equity Risk
Mark to Market Risk
Lack of Transparency
Regulation

Managing the risks

Regulation and scrutiny

Oversight
Reporting capability
Governance
Motivation
Regulation
Simplification
Consolidation
External ratings

Managing the risks:

Reintermediation
Reintermediation of off-balance sheet
assets back onto the balance sheets
of the sponsoring banks.
Reason: Benefits and uses of SPVs
do not justify the risks involved and
the potential for them to be misused.
Bankruptcy Remoteness
Only Reputational Risk

SPVs on or off-balance
sheet???
IFRS Requirements
Consolidated into the books of the
parent entity if the entity controls SPV
Control = PEA

US GAAP
Change in Rules since 2010

Conclusion
SPVs have played and continue to play an
important role in financial markets both in
financing projects and offering investors a
greater choice of ventures to invest in.
Usage of SPVs is not inherently problematic, but
rather poor risk management can lead to
failures.
Consolidation may provide a solution for many
problems.
If not: More Transparency and Better
Regulation