Special Reports

Corporate hybrid capital has had an extraordinary time in the past six months. In the European market, spreads over issuers’ senior debt have contracted to record tights that no one previously thought possible, amid a rampant bull run for credit of all kinds.

In the process, sub-senior spreads reached levels at which specialist hybrid investors had to question whether they were still being adequately paid.

Market participants have marvelled over it, but been unable to foresee anything that could stop the bulls.

When GlobalCapital gathered leading issuers, investors and investment banks for a GC Live expert briefing on the subject on March 24, participants had got their answer. The war in the Middle East had global effects on credit and interest rates, knocking credit spreads wider.

But as speakers pointed out, the widening of hybrid spreads had been remarkably limited — less than for many other asset classes.

Not only that, companies were still bringing major hybrid deals to market during these stressed conditions — and achieving successful execution.

What’s good for issuers is not necessarily bad for investors, either. Although spreads are much tighter than before, they still see value relative to other bond formats, since the standard European structure has proved it will make issuers stick to their first call dates.

To the question whether hybrid capital is a mature market, specialists therefore gave a resounding ‘yes’ — though they still expect further growth and innovation.