A hybrid security a term used to describe a security that combines certain elements and characteristics of a debt security and an equity security. These types of securities typically promise to pay a rate of return (fixed or floating) for a certain period. However, they also have equity like features, meaning they can provide a higher rate of return than just a normal debt security. This inherit higher risk is due to features that may include reduced certainty to the timing and amount of income generated. This could even include converting the security into equity of the company offering the hybrid or an early termination date of the hybrid. The holder could be second in line to other creditors.
