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CoCo Debt Swaps Seen Planned After Riskiest Bank Bonds Surge  

April 23, 2014
Abigail Moses, Bloomberg

The International Swaps & Derivatives Association is creating credit-default swap contracts for contingent capital securities, according to a person familiar with the matter.

The swaps will pay out when the riskiest bank debt, known as CoCos, convert to equity or are written down after a lender breaches preset capital ratios, according to the person, who asked not to be named because discussions are private. Nick Sawyer, a London-based spokesman for ISDA, declined to comment on the plans.

Issuance of the debt designed to absorb losses in times of stress surged to the equivalent of 75 billion euros ($104 billion) worldwide since the first notes were issued in 2009 and will top 100 billion euros this year, according to Royal Bank of Scotland Group Plc. CoCos aren’t protected by existing derivatives rules and ISDA is drafting changes to take effect in September, the person said.

Read more: Bloomberg


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