Take Note: Finding Opportunity in Mispriced Corporate Hybrids

Corporate Hybrids

In our latest white paper, Robin Usson, senior credit analyst, asks: Is there scope to extract structural alpha from misunderstood extension risk?

Fast reading


  • For non-financial corporate hybrids, fundamentals still matter.
  • The main driver of sub-senior spread is extension risk, as coupon deferral risk is structurally low and early call risk is often manageable.
  • Yet extension risk is often mispriced during market sell-off, creating structural alpha.
  • We are buyers of extension risk premium when it exceeds >10% of fair value for lower-beta hybrid and 20% for higher-beta hybrid.
Risk profile


  • The views and opinions contained herein are those of the author and may not necessarily represent views expressed or reflected in other communications. This does not constitute a solicitation or offer to any person to buy or sell any related securities or financial instruments

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