The Long and Short
PacifiCorp brings the first hybrid deal of 2026
This material is a Marketing Communication and does not constitute Independent Investment Research.
Investment grade new issue is off to a hot start in 2026. After a record-setting January, borrowers have priced nearly $60 billion in the first week of February. Among this week’s offerings was the first utility non-bank hybrid deal of the year from PacifiCorp. Valuation in the non-bank hybrid segment has gotten tighter since late last year alongside the broader market. Still, there are attractive relative value trades in the secondary market.
Issuance in the non-bank hybrid market exceeded $34.5 billion in 2025, eclipsing the previous record $30.6 billion issued in the prior year. Investor demand has fueled the sector as a key funding source to new market entrants over the past two years. With demand for credit supporting all-time tight trading levels for the investment grade index, the primary market may not taper off as much as investors were anticipating coming into 2026. The first deal of the year provides an opportunity to update relative value models and target trade ideas in more seasoned structures.
PacifiCorp (BRKHEC: Baa3/BB) brought a single tranche 30.5NC5.25 utility hybrid deal on Tuesday. It included a coupon floor for the back-end of the structure, which has become an increasingly popular feature to draw out more investors that are sensitive to extension risk. The structure was priced at a yield of 7.125% versus initial price talk of 7.50%. The bonds have tightened since launch to a yield-to-call of roughly 7.08%. At that level, the bonds are trading at over a +250 bp discount to comparable 5-year bullet PacifiCorp first-mortgage bonds (A3/A-), which still appears quite attractive relative to the rest of the BB-rated cohort. For context, the existing similar structure BRKHEC 30NC5 bonds that were issued in March of last year are indicated at a current yield of around 6.75% and also have a coupon floor (7.375%).
In the four exhibits below, the color scale in the middle indicates how the back-end floating rates compare to the other bonds in group, with the highest spread (ie most call protection) depicted in green and the lowest in red. Similarly, on the right side of the study, there are another two color scales that depict the spread and yield-to-call picks available relative to senior bullet securities. The greater spread/yield picks are depicted in green with the lower in red. Not surprisingly, higher call protection generally translates to lower spread/yield picks relative to bullets. The most attractive relative value opportunities appear to be in mostly aged vintages (though some newer issues) where moderate call protection (light green to yellow) coincides with the most attractive spread and yield compensation (light to dark green). Please note there are hybrid bonds included in the study that do not have senior comparable securities.
Exhibit 1 lists IG-rated non-bank hybrids with roughly 5-year calls (2029-2031) relative to similar 5-year bullet senior securities. This represents the largest segment of the IG-rated hybrid universe. Bonds with coupon floors are highlighted in blue. Average spread pick for hybrids relative to seniors for this cohort is currently around +150 bp. Some of the more attractive relative value opportunities within this cohort with the best spread/yield enhancement versus seniors relative to call risk include:
- SRE ‘54s (callable 2029) with +278.9 bp back-end
- SRE ‘55s (callable 2030) with +235.4 bp back-end
- SWK ‘60s (callable 2030) with +265.7 bp back-end
- TRPCN ‘65s (callable 2030) with +261.4 bp back-end
Exhibit 1. 5-year Call IG-Rated Non-Bank Hybrids vs Senior Bullets
Source: Santander US Capital Markets LLC, Bloomberg/TRACE YAS price indications only
The second IG segment in exhibit 2 lists securities with roughly 10-year calls (2034-2036) relative to similar 10-year bullet senior securities. Once again, the recent issues with coupon floors on the back-end are highlighted in blue. Average spread pick for hybrids relative to seniors for this cohort is currently around +90-95 bp. Among this group, bonds that appear to offer the most attractive valuation versus seniors relative to call risk include:
- D ‘55s (callable 2035) with +220.7 bp back-end
- ENBCN ‘54s (callable 2034) with +297 bp back-end
- PSX ‘56s (callable 2035) with +216.6 bp back-end
Exhibit 2. 10-year Call IG-Rated Non-Bank Hybrids vs Senior Bullets
Source: Santander US Capital Markets LLC, Bloomberg/TRACE YAS price indications only
Exhibit 3 lists BB-rated hybrids with roughly 5-year calls (2029-2031) relative to similar 5-year bullet senior securities. This represents the largest cohort of the of the entire non-bank hybrid universe. More recent issues with coupon floors on the back-end are highlighted in blue, which includes the new BRKHEC issue. Average spread pick for hybrids relative to seniors for this cohort is currently around +200 bp. Among this group, bonds that appear to offer more attractive valuation versus seniors relative to call risk include:
- Both AES ‘55s (callable 2029 and 2030) with back-ends of +320.1 and +383.5 bp, respectively
- New Issue BRKHEC ‘56s (callable 2031) with +329.2 back-end and 7.125% coupon floor
- EIX ‘54s (callable 2030) with +365.8 bp back-end
- ET Perps (callable 2029) with +530.6 bp back-end
- XRAY ‘55s (callable 2030) with +437.9 bp back-end
Exhibit 3. 5-year Call BB-Rated Non-Bank Hybrids vs Senior Bullets
Source: Santander US Capital Markets LLC, Bloomberg/TRACE YAS price indications only
Exhibit 4 lists BB-rated hybrids with roughly 10-year calls (2032-2035) relative to similar 10-year bullet senior securities. More recent issues with coupon floors on the back-end are highlighted in blue. Average spread pick for hybrids relative to seniors for this cohort is currently around +115-120 bp. Among this group, bonds that appear to offer attractive valuation versus seniors relative to call risk include:
- ENBCN ‘83s (callable 2032) with +441.8 bp back-end
- ENBCN ‘84s (callable 2033) with +443.1 bp back-end
Exhibit 4. 10-year Call BB-Rated Non-Bank Hybrids vs Senior Bullets
Source: Santander US Capital Markets LLC, Bloomberg/TRACE YAS price indications only
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