### Ranking for hybrid bond origination priority #### 1) Entity B — Terna S.p.A. Terna should be approached first. Terna is the clearest near-term hybrid candidate because it already issued a sizeable perpetual hybrid bond in 2022: **€989 million** classified in equity, with a **€21 million coupon** recognized to holders of hybrid bonds. This demonstrates that hybrids are an accepted and credible funding instrument for the company and that the investor base is already established. It also fits the strongest part of the suitability framework: - It is a **regulated electricity transmission network operator**, with infrastructure-like, highly visible cash flows. - It has stable and growing operating performance: operating profit increased from **€1.20 billion in 2021 to €1.33 billion in 2022**, and net profit increased from **€790.8 million to €857.7 million**. - It has a large capex program: PPE purchases were **€1.49 billion** in 2022, above the prior year. - Hybrid issuance is material relative to its balance sheet: the €989 million hybrid represents a significant addition to reported equity versus total equity of **€6.17 billion** at year-end 2022. - The cost appears very attractive: the annual hybrid coupon of **€21 million** on €989 million implies a low running cost, making the instrument efficient relative to the leverage and equity-credit benefit. - The company is investment-grade-like and infrastructure-regulated, which supports strong institutional market access. Although Terna’s financial metrics were not obviously deteriorating — operating cash flow improved strongly to **€2.32 billion** — the combination of regulated profile, proven hybrid use, material balance-sheet benefit, and clear capital expenditure funding rationale makes it the highest-priority origination target. **Suitability: Strongly suitable.** --- #### 2) Entity C — Iberdrola S.A. Iberdrola should be approached second. Iberdrola is also a very strong hybrid issuer candidate. It is a major integrated utility with regulated and quasi-regulated assets, large recurring capex needs, and existing use of subordinated perpetual instruments. Key points: - Iberdrola is a large utility with substantial infrastructure assets and visible cash flows. - EBITDA increased from **€12.0 billion in 2021 to €13.2 billion in 2022**, and profit attributable to the parent increased from **€3.89 billion to €4.34 billion**. - Operating cash flow was strong at **€10.44 billion**, up from **€8.11 billion**. - Capex and investment needs remain large: investing cash outflow was **€10.15 billion** in 2022. - Iberdrola has demonstrated hybrid market access: it issued **€2.74 billion** of perpetual subordinated obligations in 2021 and paid **€169 million** of interest on perpetual subordinated obligations in 2022. - Hybrid issuance can help support credit metrics given rising financial liabilities: noncurrent financial liabilities rose from **€37.2 billion to €44.2 billion**, and current financial liabilities also increased. However, Iberdrola ranks behind Terna because its 2022 financial performance was stronger and less obviously pressured. It did not issue new perpetual subordinated bonds in 2022, after the large 2021 transaction, suggesting less immediate need than Terna’s active 2022 hybrid issuance. The case is strong, but more likely linked to ongoing capex funding and rating headroom rather than an urgent refinancing or deterioration trigger. **Suitability: Strongly suitable, but lower immediate origination priority than Terna.** --- #### 3) Entity A — Électricité de France EDF should be approached third. EDF is a major utility and has historically used perpetual subordinated bonds, so it is relevant for hybrid issuance. It also has a potential rationale from a credit-metric perspective, because 2022 was severely weak: - EBITDA/operating profit before depreciation and amortisation fell to **negative €5.0 billion**, from positive **€18.0 billion** in 2021. - Operating loss was **€19.36 billion**. - Net loss was **€18.23 billion**. - Operating cash flow was **negative €7.43 billion**, compared with positive **€12.65 billion** in 2021. - Equity fell sharply from **€62.0 billion to €46.6 billion**. - Financial liabilities increased materially, with current financial liabilities rising to **€71.8 billion**. These deteriorating metrics would ordinarily create a strong rationale for hybrid issuance to support adjusted leverage and rating headroom. EDF also has a history of subordinated capital instruments: it issued **€994 million** of subordinated liabilities/convertible instruments in 2022 and paid **€606 million** to holders of perpetual subordinated bonds. However, EDF is ranked last because its credit story in 2022 is far more stressed and potentially event-driven than the others. Negative EBITDA, negative operating cash flow, and a very large net loss make market execution more sensitive. While hybrid issuance could theoretically help leverage metrics, the company’s immediate credit challenge appears more fundamental than simply optimizing capital structure. Investors may demand a high premium, and the cost of hybrid capital may not be marginal relative to debt. This makes EDF a less clean origination target despite its size, state-linked profile, and existing hybrid program. **Suitability: Marginally suitable to strongly suitable in sector terms, but lower priority due to financial stress and execution risk.** --- B,C,A