Asset Backed Securities - SPVs credit, better, please, rating, someone

Londonrocks

Can someone please clarify how an SPV is able to get any credit rating “it wants”? Also, can someone please clarify how credit enhancement works (which I think is what the SPV uses to get a better credit rating)? Thanks!

brainsX

Special Purpose Vehicle/ Entity (SPV or SPE) is a subsidiary separate from the parent company with its own asset/ liability structure. It is mainly used to finance a specific project or asset, and since it’s a seperate entity, its obligations are secured even if the parent company goes bankrupt - thus a credit enhancement from the bank’s perspective.
In the past it was used to hide debts (there is an optional reading on Enron in level 1 text i think) for the parent company to move liabilities off the book. But now i think the accounting standards require the parent company to show consolidated financial statements (Accountants here correct me if i’m wrong).
NANA

giorgio10

Hi, thanks for the reply, but it wasn’t really the answer I was looking for… I know what an SPV is but I don’t understand how it can be used for credit enhancement - the book mentions that an SPV can literally get any credit rating it wants - I don’t really understand how that works.
Thanks

comp_sci_kid

OK, I guess this will be dealt with in more detail at level 2 (although I do understand it a bit better now with regards to capital structure) so I will concentrate more on other material just now. Thanks for your help!