ENEL has a clear strategic and credit rationale to keep hybrids as a meaningful part of its capital structure, but not to move all the way to S&P’s 15% equity-credit cap over the next 18 months.

Key considerations:

- **Existing hybrid usage is already material.** ENEL has used hybrids since 2010 and issued a large amount in 2021. Outstanding equity-accounted perpetual hybrid bonds were **€5.567bn** at year-end 2022, unchanged from year-end 2021. This is a strong signal that hybrids are an established and acceptable funding tool for the group.

- **Current hybrid level is already around the mid-range, not zero.** Using a simplified adjusted capital base of equity plus debt-like borrowings:
  - Equity: **€42.1bn**
  - Long-term borrowings: **€68.2bn**
  - Short-term borrowings: **€18.4bn**
  - Current portion of long-term borrowings: **€2.8bn**
  - Approximate adjusted capital: **€131.5bn**
  - Existing hybrids: **€5.6bn**, or roughly **4.2%** of adjusted capital.
  
  This means ENEL is already slightly above the **3.75%** option, but well below the **7.5%** and 15% levels.

- **Leverage is elevated, so additional hybrid support is useful.** S&P Net Debt/EBITDA of **4.84x** and FFO/net debt of **15.67%** indicate constrained but still investment-grade-compatible credit metrics for a large utility. Hybrid issuance would improve S&P-adjusted leverage metrics through partial equity credit and help preserve rating flexibility.

- **Funding and capex needs are significant.** ENEL is a very large integrated utility with major network and energy-transition investment needs. Cash flow from operations was **€8.7bn**, while investing cash flow was **negative €13.6bn**, implying continued external funding requirements. Borrowings also increased materially, with proceeds from borrowings of **€22.4bn** versus repayments of **€9.4bn** in 2022.

- **However, there is no indication of transformational M&A or acute downgrade-driven need to maximize hybrid usage.** Moody’s adjusted leverage trend is described as **improving**, and operating profit improved strongly year on year. ENEL remains large, diversified, and systemically important, with significant regulated utility exposure. This argues against pushing to **11.25%** or **15%** absent a major deterioration or extraordinary capex/M&A event.

- **Market cost is less favorable than in 2020-2021.** Euro swap rates rose sharply in 2022, and subordinated/hybrid spreads were higher. New hybrids would likely be more expensive than legacy debt and more expensive than the hybrids issued in the lower-rate 2021 market. This limits the case for aggressive issuance, even though hybrids still provide rating-equity benefits.

- **18-month issuance constraint matters.** With a maximum practical issuance of about **€3bn per year**, ENEL could issue up to roughly **€4.5bn** over 18 months. Adding that to the existing €5.6bn would bring hybrids to about **€10bn**, broadly equivalent to the **7.5%** area of total adjusted capital, depending on the precise adjusted capital definition and S&P equity-credit treatment.

Overall, ENEL should be advised to **increase hybrid usage from the current low-to-mid single-digit percentage toward the 7.5% area**, rather than merely maintaining the current level or moving to the 11.25%-15% range. The company has meaningful leverage and capex pressure, and an established hybrid track record, but improving leverage trends and higher market costs argue against maximum use.

<answer>7.5%</answer>