Hybrid securities are a class of securities that have both debt and equity characteristics. These securities usually pay fixed or floating interest payments (or ‘dividend payments’) over a defined period. After this period they may be either redeemed, the interest margin is reset for a further set time period, or converted into equity (shares).
These securities often contain provisions that allow for the issuer (of the hybrid) the right to buy the security within a defined period, as well as other features that may impact the payment of interest (or dividends).
The most important aspect of hybrid securities for investors to understand is the credit/financial strength of the underlying issuer, and the ability of the issuer to meet its ongoing interest payments and capital repayments.
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