Iberdrola reopened Europe's hybrid bond market in January 2024 with a $766.35 million perpetual issue. More than 200 investors asked for nearly five times that amount. Yet the company did not raise any new money in the sense that matters to its balance sheet. The bond exists to replace one almost exactly its own size.
Key takeaways
- Iberdrola issued a $766.35 million hybrid bond on 9 January 2024 with a coupon of 4.871 percent, described in Leap's record as the most competitive hybrid operation in the previous 12 months.
- Demand for Iberdrola's January 2024 hybrid bond reached $3.72 billion from more than 200 international investors, nearly five times the amount issued.
- The Iberdrola hybrid bond is perpetual, with a repurchase option that Iberdrola can exercise within seven years.
- Proceeds of Iberdrola's January 2024 hybrid refinance the $766.3 million hybrid issued in 2018, which was due to be repurchased shortly, keeping Iberdrola's total hybrid volume stable at $9.031 billion.
- Enerdatics records three hybrid bond tranches among 33 bond financings by European companies from July 2023 to June 2024: Iberdrola's in January 2024 and two TenneT tranches in March 2024, both refinancing older hybrids.
What is a hybrid bond, and why does Iberdrola hold $9 billion of them?
A hybrid bond is debt designed to behave partly like equity. It ranks below a company's ordinary bonds if things go wrong, and it can run with no fixed maturity at all. Because of those features, credit rating agencies usually count part of it as equity rather than debt when they assess a company's leverage.
That is the point for a utility with a large investment plan. Leap's record puts Iberdrola's investment plan at a record of about $51 billion for 2023 to 2025. Funding that with ordinary bonds alone would push up leverage ratios. Funding it with new shares would dilute existing shareholders. Hybrids sit between the two. They cost more than ordinary debt but protect the rating without issuing stock.
Scale explains why the layer is so large. Leap describes Iberdrola as Europe's largest electricity utility by market capitalisation and the second largest in the world, and as an issuer of green bonds since 2014. The hybrids sit alongside that senior green programme rather than replacing it, giving the company two separate channels into the bond market.
Holding the hybrid volume stable at $9.031 billion is therefore a deliberate setting, not a coincidence. Iberdrola is maintaining a fixed layer of quasi-equity in its capital structure and rolling it over as individual bonds approach their call dates.
What does "perpetual with a seven-year option" really mean?
It means the bond never has to be repaid, but both sides expect it will be. The repurchase option, often called a call, gives Iberdrola the right to buy the bond back within seven years. Hybrid issuers usually do so at the first opportunity, because the market tends to read a missed call as a sign of stress.
The 2018 hybrid that this bond replaces is a case in point. It is being repurchased about six years after it was issued, and the new bond carries the same perpetual structure forward. In effect, Iberdrola has bought another seven years of quasi-equity at a known price.
Leap's record also describes the issue as refinancing revolving assets included in the 2018 operation, and its headline frames the bond as refinancing previously issued revolving credit facilities. A revolving credit facility is a bank line a company can draw, repay and draw again. The record does not break out how much of the proceeds goes to each use, so the precise split is not disclosed.
How expensive was the money?
Expensive next to senior debt, competitive for a hybrid. The 4.871 percent coupon was the most competitive hybrid operation in the previous 12 months, according to the record. That is the yardstick that matters: hybrids price against other hybrids, not against the issuer's ordinary bonds.
For a sense of the gap, a day earlier E.ON sold two senior green bonds at 3.375 and 3.750 percent. They were different issuers with different credit, so the comparison is only indicative, but it shows the premium investors demand for sitting lower in the capital structure.
The closest like-for-like comparison came two months later. In March 2024 TenneT, the Dutch and German grid operator, priced a $1.203 billion green hybrid in two tranches of $601.5 million each. Its eight-year tranche carried a coupon of 4.875 percent, almost identical to Iberdrola's, and the issue was more than six times oversubscribed at its peak. TenneT, too, was refinancing an older hybrid, one issued in 2017.
Enerdatics records 33 bond financings by European companies from July 2023 to June 2024. Only three of those tranches are hybrids, from two issuers, and both were rolling over existing hybrid capital rather than adding to it. Iberdrola's was the first of them, which supports the record's description of it as reopening the market. Its order book cover of nearly five times sits just below TenneT's peak of more than six.
What does the deal signal for European utility financing?
It signals that hybrid capital had become a maintenance item for large utilities. Iberdrola and TenneT both used new hybrids to replace old ones of similar size, holding their quasi-equity steady rather than growing it. The new money for investment came from elsewhere: senior green bonds, bank loans and, in the case of Spain's other large utility, public-bank loans to Endesa from ICO and the European Investment Bank.
It also signals investor appetite. Nearly five times cover at the first hybrid of the year suggests that the market for subordinated utility paper was open and competitive in early 2024. The banks running the deal, including JP Morgan, Barclays, Credit Agricole, BBVA, Natwest, Deutsche Bank, Caixabank and Royal Bank of Canada, spanned Spanish, French, British, German and North American houses.
The figure that will define the next round is the call date. When this bond reaches it, Iberdrola will face the same choice again: refinance at whatever the hybrid market charges then, or leave the bond outstanding. The 2018 bond shows which way it has gone before.
Frequently asked questions
How much did Iberdrola raise with its January 2024 hybrid bond? Iberdrola raised $766.35 million on 9 January 2024 at a coupon of 4.871 percent, with demand of $3.72 billion from more than 200 investors.
What is the Iberdrola hybrid bond used for? Leap's record states that proceeds refinance the $766.3 million hybrid issued in 2018 and revolving assets from that operation, keeping Iberdrola's total hybrid volume stable at $9.031 billion.
When can Iberdrola repay the hybrid bond? The bond is perpetual, so it has no maturity date, but Iberdrola holds a repurchase option it can exercise within seven years of issue.
Ready to get deal-ready answers in seconds? Try Enerdatics Leap AI and access verified intelligence across M&A, financings, PPAs, projects, and energy market developments through natural language.
.jpeg)
