Structured Finance and Special Purpose Entities
Special purpose entity (SPE) is a global term and is used interchangeably with the term special purpose vehicle (SPV). An SPE is either a trust or a company. Special purpose corporations (SPCs) are used for a variety of purposes, including structured risk management solutions. In securitizations, the SPE houses the asset risk either through the purchase of the assets or in synthetic form. The assets are then used as collateral for notes issued by the SPE.
Special purpose entities are powerful structured finance tools. They can be either onshore or offshore. Because of their normally off-balance-sheet, bankruptcy-remote, and private nature, SPEs can be used for both legitimate and illegitimate uses. Most of the structures discussed in this book are legitimate uses of SPEs. I point out several structures along the way that lend themselves to money laundering, disguising loans as revenue to misstate earnings through wash trades, concealment of losses, embezzlement, and accounting improprieties. Even when used legitimately, the way the issuance of SPEs is represented is sometimes ethically marginal.
All of the following are examples of SPEs: SPCs that may or may not be special purpose subsidiaries or captives; master trusts; owner trusts; grantor trusts; real estate mortgage investment conduits (REMICs); financial asset securitization investment trusts (FASITs); multiseller conduits; single-seller conduits; and certain domestically ...