Hybrid security

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Hybrid securities are a broad group of securities that combine the elements of the two broader groups of securities, debt and equity.

Examples

Innovative Tier 1 capital issued by banks

These securities, as the name suggests, have some of the characteristics of both bonds and equities. Bank hybrids are considered equity by the banks, but are often considered to be bonds by investors. Hybrid securities are complex and difficult to analyze,[1] and should only be bought by sophisticated investors.

Convertible debentures

These securities are a type of loan issued by a company that can be converted into stock by the holder and, under certain circumstances, the issuer of the bond. By adding the convertibility option the issuer pays a lower interest rate on the loan compared to if there was no option to convert. These instruments are used by companies to obtain the capital they need to grow or maintain the business.[2]

See also

References

  1. Hymas, James., OSFI Loosens Rules on Innovative Tier 1 Capital, viewed Feb. 19, 2009.
  2. Convertible Debenture Definition | Investopedia, viewed January 3, 2016.