Fitch Ratings says in its European Corporate Hybrids Dashboard that demand for hybrid instruments remains strong in 2015 as issuance in the first half of the year amounted to EUR21.8bn. This represented a material increase over the highs achieved in 2013 and 2014.
The dashboard highlights that the majority of hybrid issuance continues to come from utilities, telecoms as well as oil & gas companies, with instrument ratings mostly being investment-grade. However, some demand was seen for more speculative-grade transactions from auto, lodging and chemicals companies or even unrated airlines.
Fitch believes equity-like features in the hybrids are more likely to be activated over time for issuers of low credit quality in cyclical sectors. Such companies may even struggle to refinance the hybrid instrument at a call date, be it due to credit migration, investor appetite or a changing interest rate environment.
