Understanding Special Purpose Entities and their Role in Corporate Bond Issuance

Photo by Chris Briggs on Unsplash

Corporate bond issuance is a key funding mechanism for companies looking to raise capital.

One popular method for issuing bonds is through the use of special purpose entities (SPEs). SPEs are separate legal entities created for specific purposes, such as issuing bonds.

In this article, we will explore the basics of SPEs, how they are used in corporate bond issuance, and the advantages and risks associated with this approach.

What are Special Purpose Entities?

An SPE is a separate legal entity created for a specific purpose, such as issuing bonds. These entities are often set up as limited partnerships, corporations, or trusts.

The purpose of an SPE is to isolate certain assets and liabilities from the parent company, which can help to mitigate risk and improve the creditworthiness of the bonds being issued.

How do SPEs function in corporate bond issuance?

In corporate bond issuance, an SPE is typically created by a parent company to raise funds. The SPE issues bonds, which are then sold to investors.

The proceeds from the bond sale are used to purchase assets, such as loans or…