Question
What is a special purpose vehicle (SPV) in project
finance?Solution
A special purpose vehicle (SPV) is a company that is established specifically for the purpose of carrying out a particular project. The SPV is typically used to isolate the risks and liabilities associated with the project from the sponsor's other business activities. The SPV is usually owned by the project sponsors, but may also include other stakeholders such as lenders, investors, or contractors. The SPV is responsible for entering into contracts, raising financing, and managing the project's operations. By isolating the project's risks and liabilities in a separate legal entity, the project sponsors can limit their exposure to potential losses and reduce the impact of the project's failure on their other business activities.
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