With the summer holiday period over and markets getting back to 'normal', reports emerged last week of two likely hybrid issues: one from Westpac and one from AGL Energy.The Westpac issue is said to be a Tier 1 hybrid capital issue and will no doubt be modelled on ANZ's CPS3 issue which was completed in September. The AGL issue can be expected to look very much like the Origin Energy Notes (OEN) issued in December.Both the CPS3 and OEN issues contained unattractive high risk features for retail investors that were seemingly not appreciated or ignored, given the success of both issues.The unattractive features were those that allowed 'equity credit' to be given to the issues by the Australian Prudential Regulation Authority, in the case of CPS3, and by the credit rating agencies in the case of OEN.Interestingly, equity credit was marketed as a positive feature of the OEN, as it was for the Woolworths Notes II that was issued a month earlier. But the OEN achieved 100 per cent equity credit while the Woolworths Notes II achieved only 50 per cent. The reality is that equity credit means the securities are much closer to equity than debt in the issuer's capital structure and in their features, and this should ring warning bells for retail investors.Equity credit means that regulators and CRAs will count at least a portion of the debt, if not all of it, as equity when calculating the issuer's debt-service ratios.The CPS3 was granted equity credit status by the Australian Prudential Regulation Authority because of the inclusion of a Common Equity capital conversion trigger in the terms and conditions. If this trigger comes into effect, through ANZ's Common Equity ratio falling below 5.125 per cent, the CPS3 will convert into ANZ ordinary shares.What's more, the maximum number of ordinary shares that CPS3 holders will receive will be determined by the face value of the CPS3 (A$100) divided by 50 per cent of the ANZ share price at the time of issuing the CPS3 securities.So, if the share price was, say, A$20 at the time the CPS3 was issued but had declined in the meantime (i.e., to below A$10), a capital loss would be incurred by CPS3 holders. If mandatory conversion occurs ANZ's share price will be certain to have fallen, it will just be a matter of how far.The Common Equity capital conversion trigger is a new APRA-imposed requirement for subordinated debt issued by Australian banks. Under its Basel III reforms, APRA expects all Tier 1 and Tier 2 capital issued by the banks to be capable of absorbing losses.The OEN was granted equity credit status by the credit ratings agencies because of three critical structural aspects: mandatory coupon deferral upon loss of an investment grade credit rating from Standard & Poor's or Moody's Investors Service; the very deep subordination; and a lack of incentives to redeem the notes at the five-year call date, combined with a 60-year term to maturity.The Australian Securities and Investments Commission subsequently forced