A hybrid/ structured credit product (bond) that becomes convertible into equity shares if the price of the share exceeds a given amount (such as 20%, 30%, etc.) from the date of issue. Bail-in bonds are not convertible when issued, but become so if underlying stock gains value. The issuer can convert the bond into equity as soon as it gets into solvency problems (solvency drops below acceptable levels). Technically speaking, when the bank’s common equity tier 1 ratio falls below a specific value, these bonds convert automatically into equity. In terms of ranking, this type of bonds is deeply subordinated with uncertain income and substantial capital risk.
The designation “bail-in” has to do with the fact that this bond helps banks protect themselves from having to be bailed out by taxpayers.
Bail-in bonds are also known as CoCo bonds (contingent convertible bonds).
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