The combination of equity and debt features makes hybrid bonds an attractive financial instrument for the issuer and the investor. As one of the few specialists in Europe, we have focused on this sub-category.

Advantages for the investor

The asset class is particularly suitable for investors looking for a more return than traditional bonds offer, given a solid debtor structure. Due to the different structural characteristics and the great importance of debtor quality, selection in the hybrid environment is particularly crucial. We have specialized in this area and, thanks to a proprietary database that is unique to the sector, we are particularly successful in assisting institutional investors with a traditionally high bond level in their asset allocation. For our private clientele hybrid bonds are not less interesting because of solid debtors and higher interest payments.

Hybrid bonds offer investors higher returns compared to senior bonds. Although hybrid bonds have a long or indefinite term, they are usually redeemed early by the issuer. The probability of termination is influenced by certain incentives. Most recently, the omission of the capital charge led to a higher probability of termination, since rating agencies, banks and banking regulators have set stricter requirements for the imputation as equity. The resulting higher probability of termination has led to a growing demand for hybrid bonds and thus to rising prices.

Benefits for the issuer

Due to the equity characteristics of subordination and indefinite maturity, hybrid bonds can count as a percentage of equity in the sense of rating agencies and banking supervision as well as according to accounting standards.. As a result, these financial instruments can, among other things, enable the issuer to improve its rating, which helps them to obtain better conditions on the capital market. Since hybrid bonds can be repaid early by the issuer, they enable the bridging of a temporary equity requirement. Lower risk and tax treatment also provide a return advantage compared to new equity shares.