**Assessment of hybrid‑bond usage for A2A Energia S.p.A. (FY 2022‑2023)**  

| Metric | FY 2022 | FY 2023 | Comment |
|--------|---------|---------|---------|
| **Equity (total)** | €4.303 bn | €4.467 bn | Stable, modest growth. |
| **Total financial liabilities** (non‑current + current) | €5.847 bn (2022) | €6.889 bn (2023) | Debt load increased to fund capex & acquisitions. |
| **Cash & cash equivalents** | €0.964 bn | €2.584 bn | Large cash build‑up, mainly from new borrowings. |
| **Net debt** (financial liabilities – cash) | €4.883 bn | €4.305 bn | Still high but lower than gross debt. |
| **EBITDA** | €1.428 bn | €1.505 bn | Margin ≈ 6.5 % – typical for Italian multi‑utilities. |
| **Net profit (owners)** | €0.504 bn | €0.401 bn | Lower than 2022, partly due to higher finance costs. |
| **Operating cash flow** | €1.135 bn | €1.260 bn | Adequate, but after interest, tax and dividends the free cash flow is only €0.118 bn. |
| **Capex (PPE + intangible)** | ≈ €1.074 bn | ≈ €1.240 bn | Very capital‑intensive; > 80 % of operating cash flow. |
| **Acquisition spend** | – | €0.497 bn | Additional cash outflow, not covered by internal generation. |
| **Net debt / EBITDA** | 3.4× | 2.9× | Moderate leverage; still leaves limited headroom for rating deterioration. |
| **Interest coverage (EBIT/Finance cost)** | 7.4× | 7.6× | Comfortable, but rising finance costs (€125 m vs €89 m) are a watch‑item. |

### Rating context
- The group operates under a **regulated‑utility framework** in Italy. Regulatory stability is adequate, but the environment is not as strong as in “A‑range” jurisdictions.
- With net‑debt/EBITDA around **3×** and **FFO‑to‑debt ≈ 15 %**, the company sits in the **lower‑investment‑grade (BBB/B BB)** area, where rating headroom is limited.
- The **cash‑flow profile is tight**: free cash flow of only €118 m does not fully cover the €1.24 bn capex plus acquisitions, leaving a **funding gap of roughly €0.6‑0.8 bn** per year.

### Hybrid‑bond considerations
1. **Funding gap** – The company must refinance €1.0 bn of current financial liabilities (short‑term portion) and finance €1.2 bn+ of capex plus acquisition plans. Issuing a modest amount of hybrid debt **supplements senior debt** and **bridges the gap** without diluting equity.
2. **Leverage optimisation** – Hybrid securities receive **50 % equity credit** in S&P’s adjusted‑capital calculation. Adding, say, €0.65‑0.85 bn of hybrid (≈ 7.5 % of adjusted capital) would **raise adjusted equity by €0.33‑0.43 bn**, lowering reported net‑debt‑to‑capital and improving rating headroom.
3. **Cost impact** – Hybrid yields are typically **100‑150 bps** above senior bonds for a BBB issuer. The **cost increase** is modest relative to the benefit of preserving the investment‑grade rating, especially if the alternative is a **downgrade** that would raise the cost of all debt.
4. **Maximum allowable issuance** – S&P caps equity credit on hybrids at **15 % of total adjusted capital**. With total adjusted capital (equity + net debt) ≈ €8.8 bn, the ceiling is ≈ €1.3 bn. The **annual limit of €3 bn** is therefore not binding; the relevant constraint is the 15 % cap.

### Which tier fits best?
- **0 %** is appropriate only if the company had no financing needs and a strong “A‑range” rating – not the case.
- **3.75 %** would be insufficient to cover the funding gap and would provide only marginal leverage relief.
- **7.5 %** (≈ €0.66 bn hybrid) matches the **moderate refinancing/acquisition needs**, gives **meaningful rating headroom**, and keeps the cost increase limited.
- **11.25 %** would be excessive given the current leverage (net‑debt/EBITDA < 3×) and the fact that the company already generates positive operating cash flow.
- **15 %** would be warranted only for a **transformational M&A or a massive refinancing**, which is not currently on the table.

**Conclusion:** The company should issue hybrid bonds covering **≈ 7.5 % of total adjusted capital** (about €0.65 bn). This amount bridges the short‑term funding gap, modestly improves adjusted leverage, preserves the investment‑grade rating, and remains well within the regulatory cap and the €3 bn annual limit.

<answer>7.5%</answer>