Coco bond

Long-term, subordinated corporate bonds which are converted into shares upon the occurrence of defined events.

Cocos, abbreviation of the English term 'Contingent Convertible Bonds', are long-dated, subordinated bonds, usually with a fixed coupon, which are converted from debt to equity upon the occurrence of events defined in the bond terms. If the conversion is not triggered, the coco bond continues to run normally until redemption at maturity.

Often, these conversion events take effect in economically difficult situations and improve the financing position of the company, which can improve its equity base without a capital increase.

Bondholders become liable shareholders upon conversion from debt capital providers. For buyers of the bonds, the possible conversion means additional risks, but they receive a higher interest rate in return. Cocos are therefore only suitable for experienced and risk-conscious investors. 

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