Special Purpose Vehicle (SPV) financing, alsoknown as a project company, is a widely used technique for financinglarge investments (real estate, energy, industry, infrastructure).
Its main advantage: enabling high leverage through debt, while isolatingthe risks and cash flows of the project. Inthis guide, discover how an SPV works, its advantages, costs, andconcrete use cases.
What is an SPV (Special Purpose Vehicle) ?
An SPV (Special Purpose Vehicle) is a company created specifically to manage a given project or asset.
👉 In France, it is often a dedicated SAS (simplified joint-stock company), whose corporate purpose is limited to the financed project.
Key principle:
The financier (bank, fund, investors) finances theproject through the SPV, and not the operating company as a whole.
Why finance a project through an SPV?
1. Isolate Risks and Guaranteess
The SPV provides a financial "blank slate":
- Project assets are held within the SPV
- Guarantees are attached to the SPV
- Debts are held by the SPV
👉 If the parent company encounters difficulties, the project assets remain protected within the SPV.
👉 In the event of default, the financiers can directly access the financed assets.
This is the foundation of project finance.
2. Obtain More Debt (High Leverage)
Thanks to risk isolation, banks generally accept:
- Up to 80% to 90% debt financing
- Only 10% to 20% equity
This is significantly higher than in traditional corporate financing.
3. Isolate Project Cash Flows
The revenue generated by the project remains within the SPV:
- rents
- energy sales
- operating income
- tolls, royalties, etc.
The financier therefore analyzes:
👉 theproject's profitability
👉 theSPV's repayment capacity
and not that of the entire company.
4. Protect the Parent Company
If the project fails:
- the impact is limited to the SPV
- the operating company is preserved
The potential bankruptcy of the project does not "contaminate" the main company.
Another advantage:
the guarantees remain within the SPV (no lien on the holding company orthe parent company).
5. Simplify Financing Management
All financiers are involved at the SPV level :
- a single financing agreement
- the same conditions for everyone
- a clear structure
This prevents the parent company from managing multiple separate debts.
6. Improve Financial Transparency
With direct financing by the company:
- cash flows are mixed into the overall balance sheet
- it's difficult to track performance by project
With a Special Purpose Vehicle (SPV):
- all cash flows are dedicated
- profitability is transparent
- project performance is easily tracked
At what amount should an SPV be used ?
An SPV is generally relevant for financing:
👉 exceeding €1 million
Why?
- legal and structuring fees
- operating costs
- administrative complexity
For smaller amounts, other solutions are oftenmore suitable.
How much does it cost to create an SPV?
In practice:
- approximately €15,000 minimum
- variable depending on complexity
- legal fees + structuring
How long does it take to create an SPV?
Legal incorporation is quick :
- a few days to create the company
The main delays come from :
- structuring the financing
- defining the guarantees
- contracts and exit scenarios
👉 In practice: 1 to 3 weeks in simple cases.
Sectors where SPV financing is most used
SPVs are particularly well-suited to projects with high CAPEX :
- energy (solar, wind, renewables)
- real estate
- infrastructure
- industry
- transportation
- aeronautics
- heavy equipment
Concrete examples of SPV use
1. Real estate SPV for an operational activity
A company operates a restaurant or a spa.
Structure :
- SPV → buys the real estate
- operating company → operates
- lease between the two
Avantages :
- easier financing
- clear guarantees
- separation of operations and assets
2. SPV to finance equipment or assets
The SPV can buy :
- aircraft
- vehicles
- industrial machinery
- infrastructure
Then lease them back to the parent company.
👉 Avery common model in the aviation and transportation sectors.
3. SPV in renewable energy
Example: solar farm.
The SPV:
- buys the land
- finances the installation
- assumes the debt
- signs the energy contracts
The parent company:
Each farm = one SPV.
Operational Functioning of a Special PurposeVehicle (SPV)
The SPV may :
- have no employees
- delegate management to the parent company
- sign maintenance contracts
- sign operating contracts
The parent company acts as a service provider forthe SPV.
Advantages and Disadvantages of SPV Financing
Avantages
- high debt leverage
- risk isolation
- protection of the parent company
- Financial transparency
- Easier access to financing
- Simplified multi-financier structure
Disadvantages
- Legal costs
- Contractual rigidity
- Structured governance
- Reporting obligations
Typical SPV financing structure
Investors / bank
↓
SPV (project company)
↓
Asset/ project financed
↓
Project cash flow (rents, revenues, sales)
↓
Debt repayment
Conclusion: When to use an SPV?
SPV financing is ideal when :
- The project is large (>€1M)
- The asset is identifiable
- Cash flow is dedicated
- The company wants to isolate risk
- High debt leverage is desired
It is now a standard in project finance and a key tool for developing capital-intensive projects.
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