Cayman Island - Orphan SPVs

An “Orphan” or “Off-Balance Sheet” SPV is a type of entity used in secured financing transactions to keep certain assets separate from the main company’s balance sheet. This kind of SPV can be set up by either the owner of the assets or the financier, depending on what the transaction requires.

In these orphan structures, the shares of the SPV are held by a corporate trustee through an “orphan trust” rather than being owned directly by the company that benefits from the SPV (the beneficiary). This trust could be a charitable trust or a STAR trust. The SPV’s directors are usually independent of the beneficiary and the SPV uses the services of professional independent directors.

The key point is that the SPV is legally separate from the beneficiary/operator and is also independent of the other parties involved in the transaction, like the financiers. Because neither the beneficiary nor the financier directly owns the SPV, it does not appear on their balance sheets, making it an “off-balance sheet” entity.