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A Special Purpose Vehicle is a separate legal entity formed by an organization. The SPV represents a separate company with its own separate assets and liabilities from the family company. Special Purpose Vehicles are usually created with a certain objective in mind, and more often, they are created to help isolate the financial risk associated. Meaning the parent company is declared bankrupt, the special purpose vehicle continues to carry on. This blog will feature five ways through which an SPV can maximize your investment management.
Securitization of loans is a common reason for using Special Purpose Vehicles to maximize investment management. For instance, when giving out mortgage-backed securities from several mortgages, a bank can separate the loans from their duties by creating SPV administration services which will allow investors in the mortgage security to be able to receive payments for the loans and other creditors of the bank. The securitization process can be interpreted as a share of credit risk associated with the pool of exposure.
Having an organization’s incoming project may involve several risks. Creating a Special Purpose vehicle will go a long way in enabling the organization to legally isolate the risks involved in the project and easily share them with investors and shareholders.
Special Purpose Vehicles will go a long way in maximizing your investment management by changing part of the financial risks associated with the parent company to it. The risk will then be shared between several investors. The main aim of this method is to isolate the financial risk in the event of insolvency from the parent company. Following the principle of bankruptcy, the Special Purpose Vehicle acts on behalf of the parent company.
A company may create a Special Purpose Vehicle if the taxes on property sales become higher than the capital gain experienced from the sale. The Special Purpose Vehicle will own the property and be obligated to make sales. The parent can then sell the Special Purpose Vehicle in place of the properties, which will help it pay taxes on capital gained from the sales, and this will help maximize the investment management in your company.
Additionally, SPV can be a good chance of helping the company raise finances. The sale of properties can also achieve this, and the money gained will help offset the debts of parent companies. This procedure is often used in the financing of mega infrastructure projects.
Specific types of assets in the parent company can be hard to transfer, and hence in such a case, the company decided to create a Special Purpose Vehicle to transfer and own these assets. When the company wants to transfer these assets, it can sell the SPV as part of the unique process identified as the merger and acquisition process.
The merger and acquisition process entails many steps, and it is a lengthy process to complete. The process will take from six months to five years. The merger starts with development and an acquisition strategy aimed at having a clear idea of what the company expects to gain from acquiring the target market. Additionally, it would help if you searched for a potential acquisition target essential for identifying target companies, which will greatly maximize your investment management.
A Special Property Company can be used to maximize your company’s investment as they withhold parent company key properties. Private parent companies usually have easier access to capital investment. Since the company’s assets can be held by the Special Purpose Vehicle, they remain safe and secure. When the company faces financial problems, the special purpose vehicle will greatly reduce the chances associated with credit risk that is the probability of a loss of property owing to the failure of repaying a debt. Credit risk might put the company’s key properties at risk and can interrupt cash flow in your organization.
Establishing a Special Purpose Vehicle is essential in maximizing your investment management and can bring important benefits to the company. The above list gives out how a Special Purpose Vehicle can be beneficial to your organization and why you should create one.