### Ranking rationale #### 1) Entity A — ENEL SpA: highest priority ENEL is the strongest origination candidate among the three. It is a large, investment-grade utility with regulated and infrastructure-like cash flows, very significant institutional market access, and an established hybrid bond programme. It already has perpetual hybrid bonds outstanding, with equity-accounted hybrid instruments of about **€5.6bn** at year-end 2022, and paid hybrid coupons of **€123m** in 2022. This demonstrates both issuer familiarity with the product and investor acceptance. The key reason to engage ENEL first is that its credit metrics are under pressure and hybrid issuance is highly relevant to preserving rating headroom. ENEL’s balance sheet is large and leveraged: - Total assets: **€219.6bn** - Equity: **€42.1bn** - Liabilities: **€177.5bn** - Long-term borrowings: **€68.2bn** - Short-term borrowings plus current portion of long-term borrowings: about **€21.2bn** - Operating cash flow declined to **€8.7bn** from **€9.9bn** - Capex and investment cash outflows remained heavy, with investing cash flow of **negative €13.6bn** - Free cash flow before financing was negative. Although operating profit improved to **€11.2bn**, net profit attributable to owners fell sharply to **€1.7bn** from **€3.2bn**, partly due to discontinued operations. ENEL therefore has a clear need to protect adjusted credit metrics while funding capex and managing refinancing needs. For hybrid bond suitability, ENEL scores very highly because it combines: - Core utility profile and visible cash flows - BBB-type investment-grade profile - Deteriorating or pressured leverage and rating headroom - Heavy capex and refinancing rationale - Existing hybrid instrument base and proven market access - Material benefit to adjusted leverage if hybrids receive equity credit This makes ENEL a **Strongly Suitable** issuer and the best first call. --- #### 2) Entity B — Électricité de France: second priority EDF is also a highly relevant hybrid issuer, but it is somewhat less attractive than ENEL as an origination target because 2022 financial performance was severely stressed, making execution and investor reception more sensitive. EDF is a strategically important, state-backed utility with very large infrastructure-like operations, including nuclear generation and regulated electricity distribution assets. It already uses perpetual subordinated bonds and similar instruments. In 2022, it had: - Proceeds from issue of subordinated liabilities and convertible instruments: **€994m** - Payments to holders of perpetual subordinated bonds: **€606m** - Prior-year similar issuance: **€1.235bn** - Existing recurring use of hybrid/subordinated instruments. The credit rationale for hybrid issuance is strong. EDF’s 2022 performance deteriorated dramatically: - Operating profit/loss: **negative €19.4bn**, versus positive **€5.2bn** in 2021 - Net loss: **negative €18.2bn** - Operating cash flow: **negative €7.4bn** - Investing cash flow: **negative €25.1bn** - Financing cash flow: **positive €33.9bn**, driven by heavy borrowing - Equity declined from **€62.0bn** to **€46.6bn** - Other current financial liabilities rose materially to **€71.8bn** - Total assets increased to **€388.1bn**, but leverage and funding needs remain very high. These figures make the need for capital support and rating protection very clear. Hybrid issuance could materially help adjusted debt metrics, especially given EDF’s huge financing needs and strategic importance. However, EDF ranks below ENEL because the 2022 loss, negative operating cash flow, heavy state involvement, nuclear liabilities, and exceptional operating disruptions make the hybrid transaction more complex and potentially less straightforward from a market execution perspective. The credit story is more stressed and may require careful positioning around state ownership, recovery plan, tariff/regulatory support, and nuclear generation normalization. EDF is still **Strongly Suitable**, especially due to its utility profile, existing hybrid usage, refinancing/funding rationale, and pressure on credit metrics. But as a bank origination priority, ENEL is the cleaner and more actionable first engagement; EDF should be second. --- #### 3) Entity C — Veolia Environnement: third priority Veolia is suitable, but less urgent and less compelling than ENEL and EDF. Veolia has infrastructure-adjacent, environmental services and utility-like activities with reasonably visible cash flows. It also has a meaningful hybrid/deeply subordinated securities base: - Deeply subordinated securities increased to about **€3.5bn** at year-end 2022 - Contribution of Suez hybrid debt: **€1.624bn** - Repayment/payment of hybrid debt: **€500m** - Coupons on deeply subordinated securities: **€88m** - Existing hybrid balance at 2022 year-end: **€3.5bn** Veolia’s business and acquisition-related funding needs make hybrids relevant, particularly following the Suez integration. Its 2022 financials were solid rather than distressed: - Revenue increased to **€42.9bn** - Operating income before equity-accounted entities increased to **€2.2bn** - Net profit increased to about **€1.0bn** - Operating cash flow increased to **€4.1bn** - Equity increased to **€14.9bn** - Net finance costs rose to **€633m** - Financial liabilities remain material, especially after Suez-related balance sheet expansion. Hybrid issuance could support leverage and preserve financial flexibility, but the urgency appears lower than for ENEL or EDF. Veolia’s metrics improved operationally in 2022, operating cash flow was positive, and the company already absorbed a significant amount of hybrid capital via the Suez transaction. The case is therefore more refinancing/opportunistic/M&A-integration-related than an immediate rating-preservation need. Veolia is best viewed as **Marginally Suitable to Strongly Suitable**, but compared with ENEL and EDF it has: - Less acute deterioration in credit metrics - Less urgent need for rating rescue - Smaller scale of funding pressure - More opportunistic hybrid rationale Therefore, it should be approached third. --- A,B,C