Nordic Credit Rating (NCR) notes increasing interest in hybrid debt issued by rated corporates in the Nordic region. In addition to diversifying an issuer's capital structure, at least part of the rationale behind such instruments is to improve a company's credit metrics depending on how rating agencies view a security's equity content. However, NCR believes that some of the lessons learned from the experience and subsequent transformation of bank hybrids following the financial crisis has been overlooked in the construction of today's corporate hybrids.
"NCR believes that there is a role for corporate hybrids in an issuer's capital structure to diversify the investor base and support senior creditors," says Mille Fjeldstad, corporate analyst at Nordic Credit Rating. "However, there is little historical evidence that corporate hybrids can be loss absorbing prior to a restructuring and for this reason NCR is unlikely to view them as a standalone driver of higher issuer ratings."
In this commentary NCR describes its view of the various features of corporate hybrid instruments and explains how they affect our view on equity treatment in our corporate credit analysis. As well as their impact on issuer and issue ratings.
Analyst contact details:
Mille O. Fjeldstad, +47 99 03 89 16, mille.fjeldstad@nordiccreditrating.com
Sean Cotten, +46 732 324 378, sean.cotten@nordiccreditrating.com
Michael Andersson, +46 732 32 43 22, michael.andersson@nordiccreditrating.com