Are convertible bonds considered equity?

A convertible bond is a fixed-income corporate debt security that yields interest payments, but can be converted into a predetermined number of common stock or equity shares. The conversion from the bond to stock can be done at certain times during the bond’s life and is usually at the discretion of the bondholder.

Why do banks issue contingent convertible bonds?

In the banking industry, their use helps to shore up a bank’s balance sheets by allowing it to convert its debt to stock if specific capital conditions arise. Contingent convertibles were created to help undercapitalized banks and prevent another financial crisis like the 2007-2008 global financial crisis.

Who can issue CoCo bonds?

31 In terms of incentives, then, the literature favours CoCo bonds with a conversion mechanism over those that are written down. However, this form of bond is only available to corporations. Other legal structures, such as cooperatives, can only issue PWD CoCos.

How does a convertible bond work?

A convertible bond pays fixed-income interest payments, but can be converted into a predetermined number of common stock shares. The conversion from the bond to stock happens at specific times during the bond’s life and is usually at the discretion of the bondholder.