MSCI: Don’t Let CoCo Bond Risk Sneak Up On You

Convertible contingent securities — known as “CoCo bonds”— are a popular form of hybrid debt, but they can be hard to value when issuers head into troubled waters. These securities are a form of risky debt (typically issued by European financial institutions) that convert to equity when a predetermined trigger is met, such as when the issuer’s capital or balance sheet plunges in value. Institutional investors have been attracted to the 5%-7% yields paid by these securities.

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