Enron Aside, Special Purpose Vehicles (SPVs) Are Legal, Innovative and Widely Used

From this week's Knowledge @ Wharton newsletter: With this spring's criminal trial of former Enron executives Ken Lay and Jeffrey Skilling, the public was again seeing accounts of Raptors, Chewco and Osprey -- some of the shadowy "special purpose vehicles" the energy company used for improper purposes such as concealing its mushrooming debt. But while much of Enron's SPV use was illegal, most SPVs are proper and they can serve a variety of functions. Many are separate business-financing operations whose transactions do not appear on the parent company's books. They can be used to create easily traded asset-backed securities that allow their "sponsor" companies to convert cash flows expected over many years into immediate lump-sum payments, says Gary B. Gorton, professor of banking and finance at Wharton. Read the whole article HERE