Optimize the use of SPVs.
Artex with its combined acquisitions of Hexagon and Kane is at the forefront of Insurance Linked Securities (ILS) and structured transaction services. One of the solutions we implement for the facilitation of our ILS transactions is a Special Purpose Vehicle (SPV). We have found it helpful to establish SPVs for other transactions as well.
An SPV is a legal entity created solely to serve a particular function or transaction, such as to facilitate a specific financial arrangement. SPVs have a wide range of potential uses with the common element that they are separate legal entities and usually established to take advantage of legal and fiscal regimes in different jurisdictions in a cost-efficient manner. An SPV may be owned by one or more entities and many are set up with their shares owned by a purpose trust so as not to be consolidated with the remainder of the shareholder’s group.
While the majority of SPVs we have established has been for the purpose of easing ILS transactions, the Artex team has experience in setting up SPVs for other purposes. For example, SPVs can be used to facilitate loan acquisition financing where the owners of the SPV are looking for a vehicle to assist in the transaction of a particular arrangement in which they are not able to participate directly. This may involve, for example, an investment fund that wants to make a loan to a corporate entity for a specific purpose, yet is prevented from doing so because its prescribed activities are limited to making equity investments. In this instance, the fund can set up an SPV into which it will invest. The SPV can then use the proceeds from that share capital/premium investment to make the loan to the corporate entity, and in turn receive the loan repayments and interest. Funds are then repaid to the SPV shareholder as, and when, they are received by the SPV. The SPV is established solely for this specific purpose and once the loan principal has been repaid in full, the SPV will usually be liquidated if it cannot be recycled for additional similar transactions.
SPVs tend to rely heavily on legal documentation to ensure that all parties are clear as to the exact nature of the transaction and the role/purpose of the SPV. As a result, the transacting parties will contract legal representation to review the transaction documents prior to the agreements being signed on behalf of the SPV and its counterparts The SPV typically has a bank account, receives and makes payments, and has local board representation and management of its activities. Artex is able to assist our clients with SPV formation and management, in certain circumstances, on a case-by-case basis.