## Analysis of Enel SpA's Hybrid Bond Utilization

### Current Hybrid Bond Position

From the equity statement, Enel already has **€5,567 million** in perpetual hybrid bonds as of January 1, 2023 (end of FY2022). This was built up through issuances: €2,386M existed at start of 2021, then €3,181M was issued during 2021, bringing the total to €5,567M. No new hybrids were issued during FY2022.

Coupon paid on hybrid bonds in FY2022 was €123M (up from €71M in FY2021), reflecting the larger outstanding balance.

### Capital Structure and Leverage

**Total Debt:**
- Long-term borrowings: €68,191M
- Short-term borrowings: €18,392M
- Current portion of LT borrowings: €2,835M
- **Total gross debt: ~€89,418M**

**Equity:** €42,082M (including €5,567M hybrids classified as equity)

**Total adjusted capital (Equity + Adjusted Debt):** Approximately €42,082M + ~€83,851M (debt net of hybrid equity credit) ≈ ~€125,933M. Under S&P methodology, 50% equity credit on hybrids means roughly half of €5,567M = €2,784M treated as equity. The 15% cap on total adjusted capital would be approximately €18,900M.

**Current hybrid as % of total adjusted capital:** ~€5,567M / ~€126B ≈ **4.4%** — already within the lower range.

### Leverage Metrics Assessment

**FFO and Cash Flow:**
- Operating cash flow (continuing): €8,674M (down from €9,915M)
- Finance costs: €5,880M
- Capex (PP&E + intangibles): €13,242M — significantly exceeding operating cash flow
- The company raised €22,399M in new borrowings while repaying €9,359M, resulting in net new debt of ~€13B

**Debt increase:** Long-term borrowings grew from €54,500M to €68,191M (+€13,691M), a massive 25% increase.

**FFO/Debt deterioration:** With operating cash flow of ~€8.7B and total debt approaching €89B, FFO/debt is likely in the **8-10% range**, which is thin for an investment-grade utility.

### Key Risk Factors

1. **Very high capex intensity:** €13.2B in capital expenditure (PP&E + intangibles) far exceeds operating cash flow, requiring substantial external funding. The energy transition is driving enormous investment needs.

2. **Significant leverage pressure:** Debt grew by ~€13.7B in one year. The debt-to-equity ratio is approximately 2.1x, which is elevated for a utility.

3. **Discontinued operations losses:** A €2.3B loss from discontinued operations significantly reduced net income from €3.9B to €2.9B.

4. **Rising interest costs:** While swap curves moved dramatically from negative to ~1.7-1.9% in 2022, Enel's finance costs remained broadly stable at €5.9B. However, the €22.4B in new borrowings will carry higher rates going forward. The corporate bond index average was ~1.085%, and subordinated spreads add ~0.2%, making hybrid costs around 2.3-2.5% on new issues — modestly above senior debt.

5. **Dividend commitments:** €4.9B in dividends paid, with proposed dividend of €0.40/share (~€4.1B).

6. **Regulatory environment:** Enel operates across multiple regulated jurisdictions (Italy, Spain, Latin America), providing some stability but also regulatory risk (windfall taxes, price interventions seen in 2022).

### Rating Considerations

Enel is likely rated in the **BBB range** by S&P. The combination of:
- Rapidly rising debt (~25% increase in one year)
- Massive capex program continuing
- Declining operating cash flow
- Rising interest rate environment

...suggests **significant leverage pressure** and potential downgrade risk without capital structure optimization.

### Hybrid Strategy Assessment

**Existing hybrids:** Already at ~4.4% of total adjusted capital. No new issuance in FY2022.

**Arguments for additional hybrids:**
- High capex intensity with multi-year energy transition investment program
- Significant leverage pressure with FFO/debt metrics likely under strain
- Need to preserve investment-grade rating while funding growth
- Cost differential between hybrid and senior debt is relatively modest (~20bps sub-senior spread based on market data)
- Already established hybrid program demonstrates market acceptance

**Arguments against maximum issuance:**
- Already has €5.6B outstanding
- Hybrid coupons are rising (€123M vs €71M)
- Company may prefer asset disposals (€6.1B in assets held for sale) to delever

### Conclusion

Given:
- **Very high capex intensity** driving massive funding needs
- **Significant leverage deterioration** (debt up 25% in one year)
- **Investment grade preservation** appears dependent on capital optimization
- **Existing hybrid program** already at ~4.4% — room to expand
- **Cost of hybrid** only modestly above senior debt in the current environment
- **Asset disposals** provide some offset but insufficient alone

This profile aligns most closely with the **11.25% guideline**: high capex intensity, significant leverage pressure, and investment grade preservation strongly dependent on capital structure optimization. However, the existing ~4.4% position and the practical constraint of ~€3B/year issuance means reaching 15% would require maximal issuance. Given the severity of the leverage situation and transformational capex program, but balanced against existing hybrid stock and disposal strategy, **11.25%** appears most appropriate.

<answer>11.25%</answer>