ASX Listed Hybrids

As you can see from my table, the hybrid market is complex.
Most offer some combination of the following:

• Coupons: interest or dividends
• Return of capital, or
• Conversion of capital to shares
• Low transaction costs
• Liquidity

Let's examine those individually.

Coupon

The dividends paid on a regular shares are at the discretion of management. They may increase as the company grows or be cut to zero if money is tight. Conversely, coupons are more reliable, a fixed amount or a defined rate, such as BBSW+3% (bank bill swap rate rate + 3%)

Conversion or Capital Return

If you have a nice high-paying investment, you'd be happy but the company having to pay you may not. They may have the option to convert these instruments or they may convert automatically (mature) on a given date. Then your investment changes. This may be good - there's more liquidity in shares - but it complicates your tax.

Low Costs and Liquidity

Compared to the bond market, ASX listed hybrids are more liquid with lower transaction costs. They trade like a share but it is possible for the spreads to be wider and the some less liquid instruments will not trade every day.

Security

Typically hybrids rank above equity. This means that the coupons would get paid even when the dividend is cut. And in the unlikely event of an insolvency, debt holders would rank above shareholders who tend to get nothing. The actual order of payment is indicated by the payment rank: Preferred, 2nd lien, Sr Unsecured, Subordinated, Jr Subordinated. The details are in the fine print.