How The Special Purpose Vehicle (SPV) Operates

Now that you know what a Special Purpose Vehicle is, how then does it operate? How is it useful to a given company? When a company has its assets transferred to an SPV, does it go down during a financial crisis?

A corporation or a company uses a Special Purpose Vehicle (SPV) to finance large projects without putting the entire firm at a financial risk. Let us say, a company that deals with air travels wants to but a plane. Now a plane needs a lot of money to buy and in this case, the company might employ the services of an SPV to finance the purchasing of the plane.

In most cases, a company will transfer its assets to the Special Purpose Vehicle (SPV) for the management or to use it to finance a large project and, in the process achieve a certain set of goals without putting the entire firm at risk.

Companies also use SPVs often in a complex financing in an effort to separate different layers of equity infusion in the case where the company might be at risk of running bankrupt.

SPVs are also used to own a single asset as well as associated permits and contract rights such as an apartment building or power plant, to allow for an easier transfer of that asset.