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Frequently asked questions and other supporting information

Hybrids

Hybrids
A hybrid security is the name given to a security that has combined elements of debt and equity. Convertible bonds and preference shares are examples of hybrid securities.
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Hybrids
The most common type of hybrid security is a convertible bond. A convertible bond has debt and equity characteristics. It is essentially a bond – a debt security – but carries the option to convert the bond into a predetermined amount of equity in the issuing company. Usually the decision to convert the bond to equity is at the discretion of the bond owner.
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Hybrids

The capital structure explains who gets paid first in the case of a company wind up. Generally, debt is paid off first before equity. Hybrids usually get paid after subordinated debt as they are securities with both debt and equity. They tend to fall under debt and above equity in the capital structure. This means that in the event of a wind-up hybrid investors will receive their money if there are leftover funds after all senior and subordinate debt is paid off to creditors.

 

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