How M&A is powering interest in corporate hybrids

From both issuers and investors

The growth of the corporate hybrid market has been significant and is attracting attention from both issuers and investors again this year, writes Julian Marks, manager of the Neuberger Berman Corporate Hybrid fund.

The hybrid universe offers an opportunity to invest in investment grade names while earning returns commensurate with the high yield market. The incremental yield offered relative to senior unsecured debt presents an attractive way of enhancing performance in the current low-yield environment. Corporates issue hybrids for multiple reasons, including bolstering capital levels, lowering weighted average cost of capital, diversifying funding sources, and managing credit ratings. Hybrid capital is also designed to be cheaper to issue than common equity, while at the same time preventing o...