# Analysis of Hybrid Bond Issuance for Ferrovial SA

## Company Profile

Ferrovial is a major transportation infrastructure company (toll roads, airports, construction) headquartered in Spain. It falls under the **Transportation Infrastructure** sector methodology.

## Current Capital Structure Assessment

**Existing Hybrid Bonds:**
Ferrovial already has perpetual subordinated bonds classified under "Other Equity Securities" of €508M as of Jan 2023 (€507M as of Jan 2022). The statement of changes in equity shows ongoing activity in "Perpetual Subordinated Bonds" line items, confirming existing hybrid instruments in the capital structure.

**Equity and Debt:**
- Total Equity: €6,354M (Jan 2023)
- Equity attributable to owners: €4,113M
- Non-current borrowings: €10,776M
- Current borrowings: €877M
- Lease liabilities: €184M (current + non-current)
- Total gross financial debt approximately: ~€11,837M
- Adjusted total capital (Equity + Adjusted Debt) ≈ €6,354M + ~€11,837M ≈ €18,191M

The existing ~€508M in hybrids represents approximately **2.8%** of total adjusted capital, well below the 15% cap.

## Key Financial Metrics

**Leverage:**
- FFO to debt: Operating cash flow of €1,002M against ~€11.8B debt suggests moderate-to-high leverage
- Net debt (gross debt minus cash €5,130M): ~€6,707M — more moderate on a net basis
- However, a significant portion of debt is project-level (infrastructure project debt of ~€7,967M current + non-current), which is non-recourse

**Profitability:**
- Revenue growth: €6,910M → €7,551M (+9.3%)
- EBITDA (operating profit + D&A): €423M + €299M = €722M (consolidated)
- Net profit attributable to parent: €186M (down significantly from €1,198M which included major one-off gains)
- EBITDA margin: ~9.6% — relatively modest

**Cash Flow:**
- Operating cash flows: €1,002M (up from €810M)
- Investing cash flows: -€732M (heavy capex in infrastructure projects: €784M + €347M in associates)
- Free cash flow before financing: €270M
- Shareholder remuneration: €738M (dividends + buybacks)

## Investment and Leverage Pressures

**High Capital Intensity:**
- Infrastructure project investments: €784M in FY2022 (up from €239M)
- Investments in associates: €347M (down from €923M)
- Total investment activity is substantial and growing
- Non-current assets grew from €15.9B to €18.9B (+19%)
- Non-current liabilities grew from €11.1B to €13.1B (+18%)

**Leverage Trajectory:**
- Non-current debt excluding infrastructure projects grew from €2,151M to €2,883M (+34%)
- Current debt ex-infrastructure decreased from €1,049M to €803M
- Corporate-level debt increased meaningfully
- New borrowings of €1,207M vs repayments of €665M — net increase of €542M

**Shareholder Returns Pressure:**
- Total shareholder remuneration: €738M (buybacks €446M + dividends €132M + NCI dividends €160M)
- This is aggressive relative to net income of €302M

## Rating Considerations

Ferrovial is likely in the **BBB** category. Key factors:

1. **Competitive advantage** in transportation infrastructure is moderate-to-strong (diversified toll road and airport concessions)
2. **Scale/scope/diversity** is strong (operations across multiple countries, diverse asset types)
3. **Leverage is increasing** due to heavy infrastructure investment cycle
4. **The existing hybrid of ~€508M** already provides some equity credit

## Cost of Hybrid vs. Existing Debt

With the 2022 swap curve at ~1.7-1.9% and corporate bond spreads at ~1.1%, senior debt cost is approximately 2.8-3.0%. The sub-senior delta of ~0.2% suggests hybrid costs would be approximately 3.0-3.2% — modestly higher but not dramatically so given the rising rate environment.

## Assessment Against Guidelines

- **High capex intensity**: ✅ Infrastructure investments are significant and growing (€784M + €347M)
- **Leverage pressure**: ✅ Corporate debt increased 34% YoY; overall debt growing
- **Existing hybrid**: Already has ~€508M (~2.8% of adjusted capital)
- **Rating headroom**: Moderately constrained — leverage increasing with heavy investment cycle
- **Cost differential**: Moderate — hybrid cost slightly above senior debt
- **Refinancing needs**: Current maturities of €877M + ongoing capex needs suggest meaningful refinancing
- **Cash flow adequacy**: Free cash flow of €270M is modest relative to capital needs

The company has meaningful but not extreme leverage pressure, a high capex cycle, and already has some hybrid in the structure. The investment profile (infrastructure concessions with long asset lives) is well-suited to hybrid instruments. Additional hybrid issuance could help preserve rating headroom during the investment-heavy period, but the company maintains substantial cash balances (€5.1B) and the situation doesn't appear to require maximum hybrid utilization.

This positions Ferrovial most appropriately at the **7.5%** level — moderate refinancing/investment needs, rating headroom moderately constrained, and hybrid issuance would meaningfully improve adjusted leverage during a heavy investment cycle.

<answer>7.5%</answer>