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They’re called contingent convertible bonds, or CoCos — and are often described as high-yield investments with a hand grenade attached. The takeover of Credit Suisse by UBS Group AG included pulling the pin on $17 billion of CoCos, also known as Additional Tier 1 (AT1) bonds. A legacy of the European debt crisis, they’re the lowest rung of bank debt, producing juicy returns in good times but taking a hit when a bank runs into trouble. While shareholders — often the first domino to fall in such situations — salvaged some value from the takeover engineered by Swiss banking authorities, Credit Suisse’s CoCo holders walked away with nothing. The move reverberated across bond markets, potentially inflating borrowing costs for other banks.
