The closing weeks of 2009 were characterized by repeated warnings that the debt capital markets had not learnt the lessons of the previous two years and that investors were leaping back into risky products in a simple chase for yield. The only real surprise, however, is how quickly this happened. And more bull market instruments are set to see the light of day again this year, among them corporate hybrids.
At the peak of the last cycle corporate hybrid issuance reached roughly €9 billion – or 5% of the corporate market. But even at the market’s height protagonists were well aware of the risks involved. Speaking to Euromoney in early 2006 one commented: "Oh these are among the most toxic instruments we’ve ever created – they are absolutely a bull market instrument. In a bear market it is not just a question of maybe losing a percentage point. You can lose 10 points in a heartbeat."
And so it proved. But corporate hybrids are now poised for their comeback – depending on the outcome of Moody’s imminent revision of its approach.
The FIG hybrid tier 1 market came back in 2009 with deals from a range of banks including Standard Chartered, Nordea and Intesa Sanpaolo.