Contingent convertible bonds, or CoCos, are a type of mandatory convertible bond which can be converted into stocks in a company as soon as that company’s equity ratio falls below a predefined value.
When rates fall below the defining floor, the holder of a CoCo bond receives a predefined number of company shares the value of which, at that point in time, has dropped.
Because contingent convertibles come with a higher risk of loss compared to conventional bonds, they generally offer attractive yield rates. CoCos are commonly discussed in relation to major banks and their equity ratios.
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