ERG’s 2022 profile suggests a meaningful—but not maximum—case for hybrid bonds.

Key considerations:

- **Leverage and balance sheet pressure:** Total liabilities were about €3.17bn versus equity of about €2.05bn at year-end 2022, with substantial financial liabilities. Hybrids could help support credit metrics because part of the instrument may receive equity credit.
- **Strong profitability and cash generation:** EBITDA rose to about €499m, operating cash flow was positive at about €459m, and net profit was strong at about €383m. This supports capacity to service hybrid coupons.
- **Business transition and investment needs:** ERG is a renewables-focused infrastructure/energy company with sizeable capex and acquisition activity. Hybrids can be useful for funding growth while preserving rating headroom.
- **Interest-rate environment:** Market rates increased sharply in 2022, with 5Y–10Y swap rates moving from near-zero/negative levels to around 1.7%–1.9%. This makes hybrid issuance materially more expensive than in prior years, arguing against using the full S&P cap.
- **Equity already improved:** Equity increased significantly in 2022, and proceeds from disposals/investing activity helped reshape the balance sheet. This reduces the urgency to maximize hybrid capacity.
- **S&P cap implication:** Since S&P limits hybrid equity credit to 15% of total adjusted capital, the practical question is whether ERG should fully exploit that headroom. Given solid cash generation and growth needs but higher coupon cost and already improved capitalization, a **moderate-to-high utilization** is appropriate rather than full use.

Overall, ERG should use hybrids as a strategic balance-sheet tool, but not max out the S&P equity-credit cap in the 2022 rate environment. A **75% utilization of the cap** best balances rating support and financing cost.

<answer>75%</answer>