contingent convertible bond

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Also known as cocos (contingent convertibles). A special type of convertible bond which has a number of established conditions. A convertible bond is a financial product, specifically a bond, hybrid between debt and capital. These bonds pay interest to investors, and sometimes there is an option to convert them into shares of the company or bank that issued them.

But with normal convertible bonds, the investor is the one who has the power to decide when to perform this conversion; the contingent convertible bonds are already preset with this condition when they are issued. This type of bond provides a number of peculiarities for both parties. Thus, for the case of issuers when conversion occurs, is a way to improve the capitalization of the issuer. This allows them to have better rating levels.

Also, as this product offers better returns than others, investors are more concerned about them, and therefore the entity has an easier time to obtain financing. For the investors, as mentioned before, these bonds are interesting because they have superior returns when compared to other products. Although, there is a downside, the conversion is forced. This means that if things go well, the investor receives a return, but if things go wrong, your investment becomes capital.