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Chapter CFM25010

Document Cited in Related
Vincent
Published date16 April 2016
Record NumberCFM25010
CourtHM Revenue & Customs
IssuerHM Revenue & Customs
What is hybrid debt?

In the context of this guidance, the term ‘hybrid debt’ means debt instruments which have features of both debt and equity. An example is non-voting, fixed rate convertible preference shares. The holders of these shares get a return which is indistinguishable from debt, but the convertible element allows the instrument holder to subscribe for equity shares. Another example is subordinated debt which gives the holders a higher reward but which will be repaid after other types of debt, perhaps ranking only above ordinary shares.

The two main types of hybrid instruments are asset-linked securities and debt which is convertible into the equity of a company. Where the conversion right relates to the equity of the issuing company the debt is termed ‘convertible’. If the right relates to the equity of another company, usually a subsidiary of the...

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