Hybrid Security - Latest Style of Hybrids

Latest Style of Hybrids

Most of the hybrid securities issued recently are very bond-like. Although each has individual characteristics, typically:

• they have a set dividend rate for a 5 year period ('reset' period)
• are issued at $100
• the holder has the ability to take the new 'reset' terms, redeem the face value or convert
• the holder can convert into the shares at a discount to the current ordinary share price e.g. 5%
• the conversion ratio is into a dollar amount of shares. e.g. $100 worth of the underlying equity Note: This 'variable' conversion ratio means the price of these hybrids does not react to the movement in the share price, and they therefore behave in a similar way to fixed interest securities (this lack of co-relation with the underlying shares is sometime referred to as a zero delta).