35 years: Debt capital markets
In this video Tim covers hybrid securities and explains why issuers use them.
In this video Tim covers hybrid securities and explains why issuers use them.
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5 mins 20 secs
Corporate hybrids are subordinated capital that shares features with both debt and equity. Corporate hybrids resemble debt in that it offers high yields paid regularly, and a call option. They resemble equity in that they have no maturity date, or at least a very long maturity date, and have no obligation to pay interest.
Key learning objectives:
Explain how corporate hybrids resemble both debt and equity
Explain the benefits issuers and investors gain from corporate hybrids
Describe the risks investors face when purchasing corporate hybrids
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Corporate hybrids are a form of deeply subordinated capital that shares elements of debt and equity.
Debt, in the sense that issuers pay regular, high interest on hybrid securities; and features such as buyback (or call) structures.
Equity in the sense that they either have no maturity date or have very long maturities. And, like with equity dividends, corporate issuers of hybrids have rights under certain conditions not to pay interest on the securities.
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