Contingent convertible bonds (CoCos)

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Convertible bonds that convert automatically if a specific event occurs. Has been issued by some European banks.

CoCos are often structured so that if a bank’s equity capital falls below a given level, they are automatically converted to common stock. This has the effect of decreasing the bank’s debt liabilities and increasing its equity capital at the same time, which helps the bank to meet its minimum equity requirement.

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