Contingent Convertibles - CoCos

AAA

DEFINITION of 'Contingent Convertibles - CoCos'

A security similar to a traditional convertible bond in that there is a strike price (the cost of the stock when the bond converts into stock). What differs is that there is another price, even higher than the strike price, which the company's stock price must reach before an investor has the right to make that conversion (known as the "upside contingency").

INVESTOPEDIA EXPLAINS 'Contingent Convertibles - CoCos'

Issuing contingent bonds is more advantageous to companies than issuing regular convertibles. Until an investor exercises the option, the company does not need to count shares in its calculation of diluted earnings. (Note: as of July 2004, the FASB's Emerging Issues Task Force proposed an accounting change that, if passed, would eliminate the accounting advantage of CoCos.)

RELATED TERMS
  1. Convertible Preferred Stock

    Preferred stock that includes an option for the holder to convert ...
  2. Convertible Bond

    A bond that can be converted into a predetermined amount of the ...
  3. Mandatory Convertible

    A type of convertible bond that has a required conversion or ...
  4. Convertibles

    Securities, usually bonds or preferred shares, that can be converted ...
  5. Common Stock

    A security that represents ownership in a corporation. Holders ...
  6. Conversion Price

    The price per share at which a convertible security, such as ...
RELATED FAQS
  1. What are some examples of a deferred tax liability?

    In the United States, laws allow companies to maintain two separate sets of books for financial and tax purposes. Because ... Read Full Answer >>
  2. Which securities are considered investment grade?

    In finance, government and private fixed income securities, such as bonds and notes, are considered investment grade if they ... Read Full Answer >>
  3. Why is the use of contra accounts so important for maintaining ledgers?

    Contra accounts have been used in financial accounting to verify the balance of another corresponding account since Renaissance ... Read Full Answer >>
  4. When should a company consider issuing a corporate bond vs. issuing stock?

    A company should consider issuing a corporate bond versus issuing stock after it has already exhausted all internal forms ... Read Full Answer >>
  5. What impact did the Sarbanes-Oxley Act have on corporate governance in the United ...

    After a prolonged period of corporate scandals involving large public companies from 2000 to 2002, the Sarbanes-Oxley Act ... Read Full Answer >>
  6. How is deferred revenue treated under accrual accounting?

    In accrual accounting, deferred revenue, or unearned revenue, represents a liability on the balance sheet recorded on funds ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    Introduction To Convertible Preferred Shares

    These securities offer an answer for investors who want the profit potential of stocks but not the risk.
  2. Bonds & Fixed Income

    Convertible Bonds: An Introduction

    Find out about the nuts and bolts, pros and cons of investing in bonds.
  3. Investing

    What is Comprehensive Income?

    Comprehensive income is a part of the owners’ equity section of the balance sheet.
  4. Economics

    Explaining Financial Analysis

    Financial analysis is a general term that refers to using financial data to make business and investment decisions.
  5. Economics

    What Does Debit Mean?

    Debit is an accounting term used to refer to the left side of an accounting journal entry. Each debit must be offset by an equal credit entry.
  6. Investing Basics

    Explaining Banker's Acceptances

    A banker’s acceptance (BA) is a way for two unfamiliar parties to transact business on credit.
  7. Taxes

    What's an Audit?

    An audit is an objective examination of accounting records that makes sure the records are a fair and accurate representation of the transactions they claim to represent.
  8. Economics

    What are Accounting Principles?

    The term accounting principles refers to rules and guidelines companies use to help them record their business and financial transactions.
  9. Economics

    Understanding the Accounting Cycle

    An accounting cycle consists of the traditional procedures performed to record business events and transactions in a company’s accounting records.
  10. Fundamental Analysis

    When & Why Should a Company Use LIFO

    By using LIFO (last in, first out) when prices are rising, companies reduce their taxes and also better match revenues to their latest costs.

You May Also Like

Hot Definitions
  1. Fracking

    A slang term for hydraulic fracturing. Fracking refers to the procedure of creating fractures in rocks and rock formations ...
  2. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  3. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  4. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  5. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  6. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
Trading Center