Contingent Convertibles - CoCos

Loading the player...

What are 'Contingent Convertibles - CoCos'

Contingent convertibles (CoCos) refer to 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").

BREAKING DOWN '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. Market Conversion Price

    An investor's effective cost to purchase common stock when it ...
  2. Conversion Value

    The financial worth of the securities obtained by exchanging ...
  3. Deferred Equity

    A type of security, such as preferred shares or convertible bonds, ...
  4. Convertible Bond Arbitrage

    An arbitrage strategy that aims to capitalize on mispricing between ...
  5. Convertible Debenture

    A type of loan issued by a company that can be converted into ...
  6. Forced Conversion

    The occurrence of an issuer of a convertible security exercising ...
Related Articles
  1. Bonds & Fixed Income

    What is a Contingent Convertible (Coco)?

    A contingent convertible, or coco, is a security that’s similar to a traditional convertible bond, but with one important difference.
  2. Bonds & Fixed Income

    Convertible Bonds: An Introduction

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

    Worried About Stocks? Try on Convertibles

    Convertibles are a good hedge against equity market risk (if you're o.k. with losing a bit of upside potential).
  4. Bonds & Fixed Income

    Convertible Bonds: Pros And Cons For Companies And Investors

    Find out why businesses choose this type of financing and what effect this has on investors.
  5. Stock Analysis

    The Convertible Way To Play This Market

    Investors are certainly facing a quandary. The broad market has gone up by leaps and bounds since the end of the recession. That’s worrisome. Yet, more gains could be in store as the Fed isn’t ...
  6. Bonds & Fixed Income

    Leverage Your Returns With A Convertible Hedge

    Find out how you can maintain your income stream by using this type of bond strategy.
  7. Options & Futures

    The Mandatory Convertible: A "Must Have" For Your Portfolio?

    Mandatory convertibles are a little understood security with some distinct advantages. Find out if they are right for you.
  8. Stock Analysis

    Playing Convertibles With Calamos

    Boutique firm Calamos is a specialist in convertible bonds; find out where you can get involved.
  9. Stock Analysis

    Convertible Securities On The Right Track

    For those who need income but don’t want to miss out on moves in the overall market.
  10. Mutual Funds & ETFs

    3 Convertible Bond Mutual Funds to Avoid in 2016 (CALBX, DAAIX)

    Learn about three convertible bond mutual funds with poor fundamentals and weak track records. Also learn the reasons investors why should avoid them.
RELATED FAQS
  1. What is a 'busted' convertible bond?

    Learn about busted convertible bonds; these are hybrid securities with conversion prices significantly higher than the market ... Read Answer >>
  2. Do convertible bonds have voting rights?

    Convertible bonds usually have no voting rights until they are converted. Even after conversion, they may not be granted ... Read Answer >>
  3. What is a Chinese hedge?

    A Chinese Hedge is a form of arbitrage by which an investor shorts a convertible bond and buys the underlying common stock. ... Read Answer >>
  4. How is convertible bond valuation different than traditional bond valuation?

    Read about bond valuation, particularly the differences between how a traditional bond is valued and how a convertible bond ... Read Answer >>
  5. What are 'death spiral' convertible bonds?

    Conventional convertible bonds give the bondholder the right to exchange the bond for a certain amount of the issuer's common ... Read Answer >>
  6. Why do some investors prefer convertible over “straight” bonds?

Hot Definitions
  1. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  2. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  3. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  4. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  5. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  6. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
Trading Center