I was reading a book explaining Special Purpose Entities (SPEs) and an example is used in the book:
a firm could sell loans it has made to customers to an SPE that issues bonds to purchase the loans. The interest and principal payments on the loans are then used to make the interest and principal payments on the bonds
I wonder what might be the reasons for a corporation to decide to establish an SPE and to further engage in investment as mentioned above. Specifically, why would the SPE want to purchase another company's loan by borrowing money via bond issuing?
The book doesn't further explain the motivation behind such behavior. My current thought is maybe the parent company of the SPE wants to make a profit by investing in undervalued loans (the loan is considered by the seller to default but SPE doesn't agree with such expectation) while maintaining a relatively low financing cost (maybe SPE has a low financing cost due to its parent's strong-rating or maybe due to a sudden plunge of yield in bond market).