What is a CoCo investment?
Contingent convertible capital instruments (CoCos) are hybrid capital securities that absorb losses when the capital of the issuing bank falls below a certain level. Private investors are usually reluctant to provide additional external capital to banks in times of financial distress.
What are contingent notes?
Contingent Notes means the contingent promissory notes constituting Subordinated Indebtedness issued to the Sellers in connection with a Permitted Acquisition made hereunder or under this Agreement prior to its amendment and restatement on the Initial Closing Date.
How does a contingent convertible bond work?
Contingent convertibles (CoCos) have a strike price, where the bond converts into stock. Contingent convertibles are used in the banking industry to shore up banks’ Tier 1 balance sheets. A bank struggling financially does not have to repay the bond, make interest payments, or convert the bond to stock.
Why do banks issue CoCos?
The banks began issuing CoCos back in 2013 following the publication of Regulation EU 575/2013 (the CRR) and the Bank Resolution and Recovery Directive (BRRD). Given that CoCos qualify as AT1 capital for solvency purposes, banks began to rely on these instruments in order to meet their new capital requirements.
What is contingent capital?
What is contingent capital? Contingent capital securities are hybrid securities issued by financial institutions that are intended to provide leverage in good economic times and provide a buffer (i.e., loss absorption) under stress scenarios when it would be difficult for financial institutions to raise new capital.
What are contingent capital notes?
What is contingent equity?
A class of EQUITY financing that becomes effective once a defined TRIGGER has been breached; the class includes LOSS EQUITY PUTS and PUT PROTECTED EQUITY.
What is convertible arbitrage strategy?
Convertible arbitrage is a market-neutral investment strategy often employed by hedge funds. It involves the simultaneous purchase of convertible securities and the short sale of the same issuer’s common stock. The number of shares sold short usually reflects a delta-neutral or market-neutral ratio.
What is AT1 debt?
Additional Tier 1 bonds, or AT1s for short, are part of a family of bank capital securities known as Contingent Convertibles or ‘Cocos’. They are bonds issued by banks that contribute to the total level of capital they are required to hold by regulators.
What is CET in finance?
Common Equity Tier 1 (CET1) is a component of Tier 1 capital that is mostly common stock held by a bank or other financial institution. It is a capital measure introduced in 2014 as a precautionary means to protect the economy from a financial crisis.