What is equity credit for hybrid bonds, and how is it calculated by S&P, Moody's, and Fitch?

Equity credit is the portion of a hybrid bond that rating agencies treat like equity rather than debt in adjusted leverage calculations.

More equity credit means lower adjusted debt and stronger credit ratios.

• S&P: A standard corporate hybrid often receives 50% equity credit if it has subordination, long maturity, meaningful coupon-deferral ability, and no aggressive early step-ups.
• Moody's: Uses basket-style treatment, often with standard corporate hybrids around 50%, depending on features.
• Fitch: Often grants 50% equity credit for qualifying corporate hybrids.

Subordination, long or perpetual maturity, optional deferral, limited incentives to redeem too early, and replacement language.

Hybrid structuring often optimizes for 50% equity credit because it can improve leverage by several tenths of a turn without common-equity dilution.