Why do banks issue contingent convertible bonds?

Contingent convertibles act as additional Tier 1 capital allowing European banks to meet the Basel III requirements. These convertible debt vehicles allow a bank to absorb the loss of underwriting bad loans or other financial industry stress.

What does mean contingent convertible bond means?

A contingent convertible bond (CoCo), also known as an enhanced capital note (ECN) is a fixed-income instrument that is convertible into equity if a pre-specified trigger event occurs. The concept of CoCo has been particularly discussed in the context of crisis management in the banking industry.

What are contingent notes?

Contingent Note means an unsecured loan to the Company in an amount equal to the Withdrawing Developer’s Additional Development Land Contribution.

Are CoCos convertible bonds?

If a bank’s financial health deteriorates further, CoCos can be written down to zero or converted into equity (that’s the convertible part). While CoCos are technically bonds (and thus interest payments can be made from pretax earnings), they display many properties of an equity.

Why do banks issue Contingent convertible bonds?

Contingent convertibles are used in the banking industry to shore up their Tier 1 balance sheets. A bank struggling financially does not have to repay the bond, make interest payments, or convert the bond to stock. Investors receive interest payments that are typically much higher than traditional bonds.

What is conditional put convertible bond?

Definition of CONDITIONAL PUT CONVERTIBLE BOND: A CONVERTIBLE BOND with a PUT OPTION feature that allows investors to sell the security back to the issuer under certain market conditions (i.e., the The Law DictionaryFeaturing Black’s Law Dictionary Free Online Legal Dictionary 2nd Ed.

What are the advantages of convertible securities?

An advantage of investing in convertible securities is if the company’s stock price is undervalued, you can earn a significant rate of return. Investors benefit from convertible bonds because the bond pays a fixed rate of interest until it is converted.

What is contingent convertible?

Contingent convertibles (CoCos) are a debt instrument issued by European financial institutions. Contingent convertibles work in a fashion similar to traditional convertible bonds. They have a specific strike price that once breached, can convert the bond into equity or stock.