medium · Debt Capital Markets bond-instruments-structures
A corporate hybrid security is issued as a perpetual bond with a call date in 5 years.
If the rating agencies grant '50% equity credit' for this instrument, how does an analyst treat a $400 million issuance when calculating adjusted leverage?
- Add $200 million to total debt and treat $200 million as equity
- Ignore the $400 million entirely as it is a hybrid
- Add the full $400 million to total debt
- Subtract $200 million from cash and add $400 million to debt
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