Heavy supply of corporate hybrids spells opportunity for yield hunters

In mid-April, Danish renewables company European Energy tapped its outstanding €75 million hybrid bond, first launched last September, for another €75 million issue priced to yield 5.3%.

That drew healthy demand from Nordic investors attracted by the high income from a green instrument.

Corporate hybrid bonds are deeply subordinated, typically with deferrable coupons and no set maturity, instead incorporating call dates. They stand just above equity in the capital structure and are usually treated as 50% equity by ratings agencies.

Hybrids are often rated two notches below borrowers’ senior debt.