Contingent Convertible Bonds

Parent term
A Contingent Convertible Bond, also known as an enhanced capital note, is a debt instrument issued by European financial institutions that work in a fashion similar to traditional convertible bonds. CoCos are high-yield, high-risk, products known in European investing, emerging as an alternative way for keeping solvency in the insurance industry. These bonds were created to help undercapitalized banks and prevent global financial crisis, and can be convertible into equity if a pre-specified trigger event occurs. Contingent convertibles can take a variety of different forms such as a standby loan, a catastrophe bond, a surplus note, or a call option enhanced reverse convertible.

  • perpetual subordinated debt securities
  • first in line of debt impairment
  • Quality as tier 1 capital in Europe
  • Have a fixed noncumulative coupon
  • Callable after 5 years
  • Tend to be volatile - move a lot when there is macro uncertainty