Hybrid securities are fixed income instruments that combine elements of shares and corporate bonds. They are considered to be placed somewhere in between debt and equity, or ‘in the debt–equity continuum’ as credit rating agencies name it. The exact place of each individual hybrid in such a continuum is determined based on each of its characteristics: maturity, subordination and character of coupon deferral. These criteria are commonly used by credit rating agencies to grant an equity credit of a given security. High equity credit marks an instrument that possesses greater loss-absorption capacity, as is typical for equity instruments. Hybrids are qualified as subordinated debt, which means that – in case of liquidation or winding-up of the issuer – they are ranked below all other debt but above equity.
KeywordsLoss Absorption Equity Continuum Secured Debt Credit Rating Agency Convertible Bond
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