Special purpose vehicles (SPVs) are also large issuers of bonds in many countries. Generally, the banks create or encourage the creation of SPVs. These vehicles are generally created by banks in order to lighten their capital requirements. SPVs are the products of securitisations, and by the latter is meant the creation of marketable securities (in this case bonds) from non-marketable financial assets that have a regular cash flow.
An example of a securitisation will enhance comprehension, but before we get there we need to dear up the confusion that surrounds SPVs. The terminology surrounding SPVs includes securitisation, CMOs, CDOs, CLOs, MBSs, asset backed securities, securitisation bonds and so on. Research has indicated that definitions differ from country to country. It is our understanding that SPVs are created from securitisations; therefore all bonds issued by SPVs are securitisation bonds. Securitisation was described earlier. All bonds issued by SPVs are also asset-backed bonds (clear from below). The rest of the terminology is cleared up by mentioning the types of securities issued by SPVs:
- Residential property backed securities [also termed collateralised mortgage obligations (CMOs) and mortgage-backed securities (MBSs)].
- Vehicle backed securities.
- Collateral debt obligations [also termed collateralised debt obligations (CD0s); sometimes referred to as repackaged corporate credit; and sometimes referred to as the debt issued by SPVs that hold as assets a portfolio of fixed-income assets].
- Credit card backed securities [sometimes referred to as collateralised loan obligations (CLOs)].
- Aircraft backed securities.
- Equipment backed securities.
- Corporate loan backed securities (also CLOs).
- Commercial property backed securities (also CLOs).