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Contingent Convertibles - CoCos
What does it mean?
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").
In Other Words...
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 their 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.)
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Related Terms
Busted Convertible Bond | Common Stock | Conversion Price | Convertible Bond | Convertible Preferred Stock | Convertibles | Diluted Earnings Per Share | Mandatory Convertible
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