Moody’s introduced its baskets in 1999. As hybrid volumes increased and deals got more complicated, it refined them last November.
To calculate an issuer’s financial ratios, hybrid securities are now put in one of five baskets according to maturity, call options, priority in a liquidation, and other features.
Hybrids in basket A constitute 100% debt, those in basket B are 75% debt and 25% equity, and so on through to basket E, where a hybrid is deemed to consist entirely of equity for ratio calculation.
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