Principal write-down (PWD), in general, is the embedded capacity of a financial instrument to absorb losses by writing down its principal. An example is a write down of the principal of a contingent convertible bond (CoCo bond) upon occurrence of a trigger event. In this bond (a contingent convertible, known as principal write-down contingent convertible (CoCo)) the principal is written down (as a loss absorption mechanism, LAM), upon occurrence of a CoCo trigger, either full or partial.
Most principal write-down contingent convertibles (PWD CoCos) are embedded with a full writedown feature. However, in specific situations, holders of CoCos would lose a specific percentage (e.g., 75%) of the face value (principal) and receive the remaining percentage in cash.
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