# Analysis of Hybrid Bond Suitability

## Entity C: TenneT Holding B.V.

**Business Profile:**
- Transmission system operator (TSO) – quintessential regulated utility/infrastructure
- Owned by the Dutch State (government-owned)
- Operations in Netherlands and Germany

**Existing Hybrid Capital:**
- Already has €2,125M in hybrid capital on the balance sheet (both 2022 and 2023), indicating familiarity with the instrument and potential refinancing needs
- Hybrid capital coupons of €57M annually are being paid to hybrid holders

**Financial Metrics:**
- **Operating losses:** -€976M (2022) and -€275M (2021) operating loss; -€879M net loss (2022)
- **Massive capex program:** €4,424M in 2022 (up from €3,711M in 2021) – significant infrastructure investment
- **Rapidly increasing debt:** Long-term borrowings grew from €12,366M to €19,006M (+54%)
- **Leverage is deteriorating:** Total debt growing rapidly while equity is relatively flat
- **Equity injection:** Received €1,230M capital contribution in 2022, signaling need for capital
- **Total equity:** €7,713M vs total assets of €38,509M – equity ratio ~20%
- **Debt/Equity:** Approximately 2.6x (long-term borrowings alone vs equity)

**Hybrid Suitability Assessment:**
- **Strongly suitable**: Regulated TSO, government-owned, highly predictable (regulated) cash flows
- Existing hybrids may need refinancing depending on call dates
- Deteriorating credit metrics with massive capex needs
- Hybrid issuance would materially improve adjusted leverage given rapid debt accumulation
- Already proven hybrid issuer – market access established
- The significant losses and growing leverage create urgency for credit-supportive instruments

## Entity A: EDP, S.A.

**Business Profile:**
- Integrated energy utility (generation, transmission, distribution, supply of electricity and gas)
- Based in Portugal with significant international operations (Brazil, North America)
- Listed company

**Financial Metrics:**
- **Revenue:** €20.65B (2022), up from €14.98B (2021)
- **Net profit:** €1,170M (2022), €1,105M (2021) – profitable and growing
- **EBITDA proxy:** ~€4,524M (2022)
- **Total debt (LT borrowings):** €15,783M; Total equity: €13,835M
- **Finance costs:** €1,753M (2022), significantly up from €876M (2021) – rising cost of debt
- **Significant capex:** €3,500M in PP&E/intangible investments
- **Cash flow from operations:** €3,778M (2022)
- **Dividends:** €0.19/share; total ~€750M to parent shareholders
- **Large cash flow hedging losses:** Significant OCI losses from cash flow hedges (€-831M net of tax)

**Hybrid Suitability Assessment:**
- **Strongly suitable to Marginally suitable**: Utility/energy company with regulated and quasi-regulated components
- BBB-area credit profile likely given size, leverage, and sector
- Leverage is moderate but rising finance costs are a concern
- No existing hybrid capital on balance sheet – would be a new instrument
- Hybrid could improve adjusted leverage and provide rating headroom
- Large capex program and M&A activity (Sunseap acquisition) create funding rationale
- Significant non-controlling interests suggest complex capital structure

## Entity B: A2A S.p.A.

**Business Profile:**
- Italian multi-utility (energy, environment, networks)
- Owned by Municipalities of Milan and Brescia
- Diversified operations

**Financial Metrics:**
- **Revenue:** €23,166M (2022), doubled from €11,549M (2021)
- **EBITDA:** €1,505M (2022), €1,428M (2021) – stable
- **Net profit:** €448M (2022), €550M (2021) – profitable but declining
- **Total equity:** €4,467M; Total assets: €21,367M
- **Non-current financial liabilities:** €5,867M (up from €4,322M)
- **Finance costs:** €125M – relatively modest
- **Cash flow from operations:** €1,260M (2022)
- **Free cash flow:** €118M (2022) – thin but positive
- **No existing hybrid capital**

**Hybrid Suitability Assessment:**
- **Marginally suitable**: Multi-utility with regulated and unregulated segments
- Municipal ownership provides stability
- Leverage is manageable; debt levels are growing but not as dramatically as TenneT
- No existing hybrids to refinance
- Financial metrics are relatively stable – hybrid would be more opportunistic
- Smaller absolute need compared to TenneT and EDP
- Less urgency in credit metrics

## Ranking

1. **Entity C (TenneT)** – Highest priority: Existing hybrids potentially needing refinancing, pure regulated TSO, rapidly deteriorating leverage due to massive capex, government-owned, already established hybrid issuer, most urgent credit metric deterioration
2. **Entity A (EDP)** – Second priority: Large utility with significant capex needs, rising finance costs, no existing hybrids (new issuance opportunity), BBB-area profile likely, strong business rationale
3. **Entity B (A2A)** – Third priority: Stable metrics, no existing hybrids, less urgent need, more opportunistic case

<answer>C,A,B</answer>