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company, hence the performance of the new entity will not be affected by the ups and downs of the originating entity. The SPE will be subject to fewer risks and thus provide greater comfort to the lenders. What is important here is the distance between the sponsoring company and the SPE. In the absence of adequate distance between the sponsor and the new entity, the latter will not be an SPE but only a
189:, if the SPE securitization vehicle were owned or controlled by the bank whose loans were to be secured, the SPE would be consolidated with the rest of the bank's group for regulatory, accounting, and bankruptcy purposes, which would defeat the point of the securitization. Therefore, many SPEs are set up as
280:
Property investing: Some countries have different tax rates for capital gains and gains from property sales. Letting each property be owned by a separate company can mean a lower tax bill. These companies can then be sold and bought instead of the actual properties, effectively converting property
221:
whose payments come from a pool of loans. However, to ensure that the holders of the mortgage-backed securities have the first priority right to receive payments on the loans, these loans need to be legally separated from the other obligations of the bank. This is done by creating an SPE, and then
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is one such strategy. In addition, they are commonly used to own a single asset and associated permits and contract rights (such as an apartment building or a power plant), to allow for easier transfer of that asset. They are an integral part of public private partnerships common throughout Europe
184:
A special-purpose entity may be owned by one or more other entities and certain jurisdictions may require ownership by certain parties in specific percentages. Often it is important that the SPE is not owned by the entity on whose behalf the SPE is being set up (the sponsor). For example, in the
167:
Normally a company will transfer assets to the SPE for management or use the SPE to finance a large project thereby achieving a narrow set of goals without putting the entire firm at risk. SPEs are also commonly used in complex financings to separate different layers of equity infusion. Commonly
377:
A good SPE should be able to stand on its feet, independent of the sponsoring company. This does not always happen in practice. One of the reasons for the collapse of the Enron SPE was that it became a vehicle for furthering the ends of the parent company in violation of the prudential norms of
369:
Like a company, an SPE must have promoter(s) or sponsor(s). Usually, a sponsoring corporation hives off assets or activities from the rest of the company into an SPE. This isolation of assets is important for providing comfort to investors. The assets or activities are distanced from the parent
231:
Asset transfer: Many permits required to operate certain assets (such as power plants) are either non-transferable or difficult to transfer. By having an SPE own the asset and all the permits, the SPE can be sold as a self-contained package, rather than attempting to assign over numerous
425:(IFRS), the relevant standard is IAS 27 in connection with the interpretation of SIC12 (Consolidation—Special-Purpose Entities). For periods beginning on or after 1 January 2013, IFRS 10 Consolidated Financial Statements supersedes IAS 27 and SIC 12.
276:
Regulatory reasons: A special-purpose entity can sometimes be set up within an orphan structure to circumvent regulatory restrictions, such as regulations relating to nationality of ownership of specific
511: For example, it is quite common for tanker fleets to have each tanker owned by a separate special-purpose entity to try to avoid group liability in relation to widely drawn anti-pollution laws.
656:
225:
Risk sharing: Corporates may use SPEs to legally isolate a high risk project/asset from the parent company and to allow other investors to take a share of the risk.
411:
624:
649:
625:"Short-seller Andrew Left warned investors of Evergrande's looming insolvency nearly 10 years ago — and was banned from trading in Hong Kong as a result"
398:, which declared bankruptcy in 1994. Several executives of the company were found guilty of securities fraud, served prison sentences, and paid fines.
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418:
that sets out the consolidation treatment of these entities. There are a number of other standards that apply to different transactions with SPEs.
455:
323:
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164:. A formal definition is "The Special Purpose Entity is a fenced organization having limited predefined purposes and a legal personality".
422:
247:(Itanium) processor architecture, they created a special-purpose entity which owned the intellectual technology behind the processor.
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68:
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49:
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160:) created to fulfill narrow, specific or temporary objectives. SPEs are typically used by companies to isolate the firm from
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20:
82:
115:
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64:
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schemes which have, as their main goal, the avoidance of tax or the manipulation of financial statements. The
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448:, a special purpose vehicle intended to promote trade with Iran without using the US dollar and evade
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provided by an administration company to ensure that there is no connection with the sponsor.
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316:
266:
531:"Special Purpose Entities in Megaprojects: empty boxes or real companies? Literature Review"
273:
case is possibly the most famous example of a company using SPEs to achieve the latter goal.
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19:"Special purpose company" redirects here. For the pooled investment vehicle, see
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Special-purpose entities were one of the main tools used by executives at
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To enable several businesses, often occupying different positions in the
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Finance: Multi-tiered SPEs allow multiple tiers of investment and debt.
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loans (or other receivables). For example, a bank may wish to issue a
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614:, section 2, published on 18 January 2018, accessed on 21 August 2024
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Sainati, Tristano; Brookes, Naomi; Locatelli, Giorgio (2016-09-19).
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To maintain the secrecy of intellectual property: For example, when
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390:, in order to hide losses and fabricate earnings, resulting in the
315:(FASIT), a defunct entity used for securitization of any debt for
831:
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414:, a number of accounting standards apply to SPEs, most notably
209:
Some of the reasons for creating special-purpose entities are:
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442:(FASB ruling on consolidation of variable interest entities)
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has also been accused of using off book SPE to hide debt.
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sale gains into capital gains in order to pay less tax.
300:(REMIC), used for the pooling and securitization of
56:. Unsourced material may be challenged and removed.
579:Gorton, Nicholas S.; Souleles, Gary (March 2005).
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222:transferring the loans from the bank to the SPE.
181:which rely on a project finance type structure.
456:Irish Section 110 Special Purpose Vehicle (SPV)
324:Irish Section 110 Special Purpose Vehicle (SPV)
313:financial asset securitization investment trust
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265:Financial engineering: SPEs are often used in
650:
581:"Special Purpose Vehicles and Securitization"
176:strategies unavailable in the home district.
144:; or, in some cases in each EU jurisdiction,
423:International Financial Reporting Standards
356:for the purpose of reducing or eliminating
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326:(S110 SPV), the largest SPV in the EU for
213:Securitization: SPEs are commonly used to
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116:Learn how and when to remove this message
298:real estate mortgage investment conduit
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378:corporate financing and accounting.
54:adding citations to reliable sources
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476:Special purpose private equity fund
471:Special-purpose acquisition company
21:Special-purpose acquisition company
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478:, similarly named business term
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16:Type of legal entity in finance
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156:of some type or, sometimes, a
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568:European PPP Expertise Centre
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487:Structured investment vehicle
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193:with their shares settled on
150:financial vehicle corporation
977:Staggered board of directors
585:NBER Working Paper No. 11190
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396:Towers Financial Corporation
342:real estate investment trust
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1094:Accretion/dilution analysis
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136:; or, in Europe and India,
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1057:Leveraged recapitalization
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535:Project Management Journal
306:mortgage-backed securities
260:public-private partnership
168:created and registered in
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65:"Special-purpose entity"
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962:Special-purpose entity
800:Direct public offering
770:At-the-market offering
450:sanctions against Iran
197:and with professional
130:special-purpose entity
1114:Conglomerate discount
608:National Audit Office
392:Enron scandal of 2001
267:financial engineering
254:, to contract with a
1136:Economic value added
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50:improve this article
721:Senior secured debt
406:Accounting guidance
243:started developing
158:limited partnership
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810:Follow-on offering
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61:Find sources:
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39:This article
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1198:Real options
1014:Tender offer
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48:Please help
43:verification
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972:Squeeze-out
942:Proxy fight
872:Mergers and
785:Bought deal
716:Senior debt
612:PFI and PF2
400:Evergrande
354:real estate
256:public body
252:value chain
1218:Tax shield
1178:Mismarking
982:Stock swap
932:Pitch book
902:Divestment
780:Bookrunner
701:Pari passu
516:References
344:(REIT), a
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215:securitize
170:tax havens
76:newspapers
1193:Pure play
1086:Valuation
952:Sell side
815:Greenshoe
555:114169162
482:Stichting
410:Under US
199:directors
106:July 2009
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1024:Leverage
1002:Takeover
897:Demerger
882:Buy side
429:See also
232:permits.
1007:Reverse
992:Synergy
832:Pre-IPO
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741:Warrant
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421:Under
382:Abuses
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551:S2CID
499:Notes
494:(VIE)
435:Enron
388:Enron
286:Types
271:Enron
262:deal.
258:in a
245:IA-64
237:Intel
97:JSTOR
83:books
668:and
412:GAAP
304:for
239:and
205:Uses
69:news
589:doi
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346:tax
322:An
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134:SPE
52:by
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