Naturgy has a clear precedent for using hybrids: it issued hybrid bonds in 2021 or 2022 and first accessed the hybrid market in 2013. That is a strong indicator that hybrids are an accepted part of its capital structure and that continued use over the next 18 months is reasonable, subject to leverage needs and cost.

From a credit perspective, the company does not appear to need maximum hybrid support. Its 2022 S&P Net Debt / EBITDA was 2.67x and S&P FFO / Net Debt was 28.47%, both relatively solid for a large energy utility/infrastructure group. Moody’s adjusted leverage trend is also improving. EBITDA increased materially to €4.95 billion from €3.53 billion, operating profit rose to €3.08 billion, and operating cash flow improved sharply to €4.24 billion from €1.00 billion. Equity also increased to €9.98 billion from €8.87 billion. These factors suggest improving, not deteriorating, credit metrics.

However, there are still reasons to maintain some hybrid capacity. Naturgy remains capital intensive, with purchases of PP&E and intangible/noncurrent assets of about €1.69 billion in 2022, and it distributed substantial dividends of about €1.5 billion. Financial debt remains large: noncurrent financial liabilities were €14.0 billion and current financial liabilities €2.3 billion. Current maturities also increased to €2.11 billion from €1.49 billion. Therefore, hybrid issuance could provide useful rating and balance-sheet flexibility, especially if Naturgy wants to fund capex and dividends without weakening adjusted credit metrics.

The main constraint is cost. Euro rates rose sharply in 2022: 5-year swaps averaged 1.73% versus negative levels in 2020-2021, and subordinated/non-financial IG spreads also increased. A new hybrid would likely be materially more expensive than Naturgy’s legacy debt and prior hybrids. This argues against an aggressive 11.25% or 15% recommendation unless there is clear evidence of severe leverage pressure, transformational capex, or downgrade risk, which is not apparent from the data.

Overall, because Naturgy already uses hybrids and has ongoing capital intensity and refinancing needs, a zero or very low recommendation would understate the usefulness of hybrids. But because leverage metrics are improving and the cost of new hybrid capital is meaningfully higher, the company should not be advised to maximize hybrid issuance. A mid-level allocation is most appropriate.

<answer>7.5%</answer>