### Ranking rationale for hybrid bond origination priority #### 1) Entity B — TenneT Holding B.V. — highest priority TenneT is the clearest first target for a hybrid bond transaction. It is a regulated transmission system operator, with highly visible infrastructure-like cash flows and state ownership by the Dutch State. This places it squarely in the “Strongly Suitable” issuer category from a business-risk perspective. Key points: - **Regulated utility / energy infrastructure profile:** TenneT is a transmission system operator, which is one of the most natural sectors for hybrid capital. - **Large capex and funding need:** PPE increased from EUR 23.8bn to EUR 26.8bn, and capex was very high at EUR 4.4bn in 2022. Investing cash flow was negative EUR 4.3bn. - **Deteriorating credit metrics:** Reported net debt rose materially. Long-term borrowings increased from EUR 12.4bn to EUR 19.0bn, while the company reported a 2022 loss of EUR 879m and operating loss of EUR 976m. Even though some of this may reflect regulatory timing or energy-cost effects, the reported metrics are clearly under pressure. - **Hybrid already part of capital structure:** It already has EUR 2.125bn of hybrid capital and paid EUR 57m to hybrid capital owners. This demonstrates market precedent, documentation familiarity, investor recognition, and internal acceptance of hybrids as a recurring funding tool. - **Material rating-headroom benefit:** Given its high leverage, high capex and negative earnings, additional hybrid equity credit could materially improve adjusted debt metrics and support ratings. - **Cost rationale:** Existing hybrid coupon burden appears relatively low at EUR 57m on EUR 2.125bn, around 2.7%, compared with the company’s broader funding needs. Even if new hybrids price higher, the strategic benefit for rating protection could be meaningful. - **Strong refinancing / funding rationale:** Even if no explicit near-term hybrid call is shown, the combination of existing hybrid capital, very large capex, rising borrowings and state-backed regulated utility status makes TenneT the most actionable candidate. Overall, TenneT has the strongest combination of sector suitability, balance-sheet pressure, capital-market credibility, existing hybrid precedent, and need for rating support. --- #### 2) Entity C — Redeia Corporación S.A. — second priority Redeia is also a strong candidate, but less urgent than TenneT. Redeia is an electricity transmission / infrastructure group with highly visible regulated cash flows. It has stable profitability, strong operating cash generation, and a conventional utility capital structure. It is therefore also broadly “Strongly Suitable,” although the urgency for a hybrid is lower because metrics are not obviously deteriorating in the same way as TenneT’s. Key points: - **Regulated infrastructure profile:** Redeia is a Spanish electricity infrastructure group, with highly visible cash flows and stable earnings. - **Stable profitability:** 2022 operating profit was EUR 962m versus EUR 992m in 2021; net profit was EUR 681m versus EUR 686m. This is very stable. - **Strong operating cash flow:** Operating cash flow was EUR 1.57bn in 2022, broadly stable versus EUR 1.61bn in 2021. - **Leverage improved rather than deteriorated:** Equity increased from EUR 3.69bn to EUR 4.89bn. Long-term borrowings declined from EUR 5.90bn to EUR 5.49bn, and current borrowings also fell from EUR 1.39bn to EUR 0.72bn. Cash fell, but the balance sheet does not show the same severe deterioration as TenneT. - **Hybrid could still be useful:** A hybrid could support rating headroom, finance capex, fund growth or acquisitions, and avoid common equity issuance. It would likely receive good market acceptance given the regulated-utility profile. - **Less immediate trigger:** There is no evidence of existing hybrid capital or a near-term hybrid call requiring refinancing. The case is more opportunistic or proactive than urgent. Redeia is a high-quality infrastructure issuer and would likely be well received by the hybrid market. However, the absence of an obvious refinancing trigger or material deterioration makes it a second-priority target rather than the first. --- #### 3) Entity A — ENI S.p.A. — third priority ENI is suitable, but more marginal than the two regulated grid operators. ENI has significant scale, capital-market access, existing hybrid precedent, and strong 2022 results. However, it is an integrated oil and gas company, exposed to commodity cycles, and its recent metrics improved sharply rather than deteriorated. Therefore the near-term need for a new hybrid appears lower. Key points: - **Partially regulated / energy industrial profile:** ENI is a large integrated energy company, but its cash flows are materially exposed to oil and gas prices. This makes it less aligned with the strongest hybrid issuer profile than regulated network utilities. - **Existing hybrid precedent:** ENI has issued perpetual subordinated bonds before. It had EUR 3.0bn of net hybrid issuance in 2020 and EUR 2.0bn in 2021, with coupon payments of EUR 138m in 2022. This is positive for market access and investor familiarity. - **Strong 2022 performance:** Revenue rose to EUR 132.5bn, operating profit was EUR 17.5bn, and net profit was EUR 14.0bn. Operating cash flow was EUR 17.5bn. - **Credit metrics improved:** Equity increased from EUR 44.5bn to EUR 55.2bn. Long-term borrowings declined from EUR 23.7bn to EUR 19.4bn. Cash and liquid financial assets are substantial. There is no clear evidence of deteriorating leverage pressure. - **Hybrid rationale weaker currently:** Because earnings and cash flow were very strong in 2022, the need to issue hybrids to defend rating headroom appears less pressing. A transaction could still be used opportunistically for refinancing, energy-transition capex, or maintaining rating flexibility, but it is less urgent. - **More sector volatility:** Commodity exposure makes hybrid pricing and investor appetite more sensitive than for regulated utilities. ENI is a credible hybrid issuer, but relative to TenneT and Redeia, it is less attractive as an immediate origination target because its current financial position is strong and the strategic need is less acute. --- ### Final ranking 1. **TenneT Holding B.V.** 2. **Redeia Corporación S.A.** 3. **ENI S.p.A.** B,C,A