VERBUND should use hybrid bonds only moderately over the next 18 months: the strongest case is for incremental balance-sheet flexibility rather than urgent rating preservation.

Key considerations:

- **Business profile is strong.** VERBUND is a large Austrian electricity group with substantial regulated grid activities and a major low-carbon generation base, especially hydro. Austria is a supportive, low-country-risk jurisdiction. This supports a solid investment-grade profile and reduces the need for aggressive hybrid usage.

- **2022 earnings and cash flow were very strong.** Revenue more than doubled to about **€10.35bn**, EBITDA rose to **€3.16bn**, and net profit reached **€1.95bn**. Operating cash flow improved sharply to about **€2.02bn**, more than covering ordinary capex of about **€1.09bn** before acquisitions and other investing outflows.

- **Leverage increased but remains manageable.** Financial liabilities rose materially:
  - Noncurrent financial liabilities increased to **€2.84bn**
  - Current financial liabilities were **€1.11bn**
  - Cash was **€0.41bn**
  - Approximate gross financial debt was therefore about **€3.95bn**, and net debt about **€3.54bn**
  
  Against EBITDA of **€3.16bn**, this implies low net leverage on reported figures, even allowing for S&P adjustments. Equity also increased to **€8.32bn**, giving a strong capitalization base.

- **Funding needs are meaningful but not transformational.** VERBUND had sizable investing cash outflows of about **€1.59bn** in 2022, including capex and acquisitions, and the company is likely to continue investing heavily in grids, renewables, and energy transition assets. However, this does not appear to be a crisis-level or transformational funding requirement requiring maximum hybrid support.

- **Hybrid issuance could provide useful rating flexibility.** Because the company is capital intensive and exposed partly to power-market volatility, some hybrid capital would help preserve credit metrics if power prices normalize, capex remains high, or acquisitions continue. Under S&P treatment, hybrids can receive partial equity credit, improving adjusted debt metrics.

- **But the cost argument is not especially favorable.** Market rates rose sharply in 2022: 5–10 year swaps moved to roughly **1.7%–1.9%**, and subordinated nonfinancial IG spreads also widened. Hybrid coupons would likely be materially above VERBUND’s existing average debt cost. That argues against moving toward the 11.25% or 15% cap unless rating pressure is severe, which the reported 2022 metrics do not indicate.

- **No evidence of a large existing hybrid base or urgent refinancing cliff.** The starting point appears to be little or no outstanding hybrid capital. Moving immediately toward the S&P 15% cap would be aggressive and unnecessary given strong profitability, equity growth, and manageable leverage.

Overall, the appropriate recommendation is **3.75% of total adjusted capital**. This recognizes moderate funding and capex needs and provides useful rating flexibility, while avoiding excessive reliance on a relatively expensive instrument. A 7.5% recommendation would be more appropriate if leverage were already materially constrained or if a large acquisition/capex program were clearly debt-funded; the facts support a more conservative hybrid layer.

<answer>3.75%</answer>