Case Study #02 – Special Purpose Vehicle
Background
Special Purpose Vehicles (SPVs) were popularized following the collapse of ENRON post 2001. While SPVs had long preceded ENRON collapse, the collapse of ENRON and the use of SPVs by that company leading to its collapse, certainly heightened public’s attention relative to SPVs.
What are SPVs?
Special Purpose Vehicles or Financial Vehicles are instruments that are used for the securitization of debt. SPVs are effective to the extent that the SPVs and or Financial Vehicles are far removed from the entity and or company that created the SPVs.
While people have a negative view of SPVs based on the ENRON experience, there is value to SPVs. In the area of investments, SPVs or instruments incorporated are used to separate investments that are usually of higher risks, when compared to other lower risk investments in a portfolio. So, as an example, if you were managing a pension fund, which are typically low risk investments, you may wish to create a separate entity that invests in startups, which are typically high risk, high return investments. You may wish to ensure that this investment in startups is kept separate and apart from investments in the pension fund.
The Bahamas
In The Bahamas, there are a several SPVs that were created by the Government of The Bahamas. Among these SPVs are:
i. Resolve Bahamas; and
ii. Poinciana
You are asked to carry out the research and address the following:
i. What is your understanding of SPVs and or Financial Vehicles based on the experience from at least two(2) countries?
ii. What are the merits, if any, with the establishment of SPVs?
iii. Based on data provided in the Central Bank Statistical Digest (www.centralbankbahamas.com) and data provided by the Ministry of Finance’s website on the budget numbers. www.bahamas,gov.bs, discuss the impact of local SPVs on Government’s Finances.
iv. What impact, if any, will SPVs have on the following:
a. Firms in The Bahamas
b. Individuals as consumers
c. Fiscal position of the country
v. What recommendations, if any, will you provide to the Government of The Bahamas with respect to the establishment of SPVs?
Note: search up about
Carbon credit
Case Study #02 – Special Purpose Vehicle Background Special Purpose Vehicles (SP
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