What is a hybrid?
Hybrid securities are a broad classification of securities which combine both debt and equity characteristics to raise money. Hybrids pay a pre-determined (fixed or floating) rate of return or dividend until a certain date.
At the end date of the investment, the investor may have a number of options including converting the securities into the underlying ordinary shares of the issuer.
Therefore, a hybrid provides the opportunity for a ‘known’ cash flow as well as the opportunity for the issuer to convert the underlying equity.
- Wide variety of maturities and structures
- Wide variety of issuers across the credit rating spectrum
- Typically offer higher returns than those offered by more senior assets in the capital structure such as senior and subordinated debt.
- Varying liquidity
- The highest risk fixed income security in terms of where it sits in the capital structure, although lower risk than equity
- Have some equity characteristics which may add to the existing risk of a portfolio.
- Investors seeking moderate to high risk levels
- Wholesale and Retail investors.