Global Financial Observer Dr. Robert Peng
Global Financial Observer Dr. Robert Peng
Dear friends, I have received many inquiries recently about CoCo bonds, also known as contingent convertible bonds, issued by Credit Suisse. One of the concerns many people have is whether investing in such instruments means buying an asset without any protection, as the Swiss government can cancel them at any time. Let me provide an analysis for everyone:
Firstly, let me explain some important facts about CoCo bonds. CoCo bonds are emergency convertible bonds issued by Credit Suisse, also known as Additional Tier 1 Capital Bonds. Despite being called tier 1 bonds, they rank only second to last regarding debt repayment priority. This means that investors holding CoCo bonds may not be given priority in debt repayment in the event of a company’s bankruptcy and may still face losses after the company’s liquidation.
In addition, CoCo bonds are perpetual bonds with no maturity date. Although Credit Suisse has the right to redeem them, the issuance of such bonds is limited to specific circumstances, and the redemption right is also restricted. Furthermore, regulatory authorities also retain the right to cancel them, another point investors need to be aware of.
It’s worth noting that some of the conversion rights issued by AT1 bonds are exchangeable, which means that investors exercising conversion rights may be limited to exchanging them for stocks of other companies (non-Credit Suisse). This is also one of the factors that investors need to consider carefully when investing in CoCo bonds.
Finally, this batch of CoCo bonds is a $1.65 billion capital bond issued by Credit Suisse in June 2022. Credit Suisse promised investors an annual interest rate of up to 9.75%, the highest in the past ten years for perpetual bonds. The conversion price set at that time was $25 per share. This is also one of the reasons why many investors have been interested in investing in these bonds.
In summary, CoCo bonds, as a financial instrument, have high risks and returns. Investors should assess their risk tolerance and investment objectives and carefully consider the potential risks and returns of investing in CoCo bonds.
Regarding the question of cancellation by the Swiss government, according to Swiss law, Credit Suisse, as the issuer, has the right to cancel CoCo bonds in specific circumstances, such as when Credit Suisse faces bankruptcy, inadequate capital adequacy, or other risk events. However, the Swiss government also has the right to cancel CoCo bonds. Therefore, when investing in CoCo bonds, investors are exposed to the specific risks of Credit Suisse as a company and the cancellation risk by the Swiss government. However, CoCo bond investors who have incurred losses may also seek compensation from Credit Suisse and its subsidiaries through legal means.
However, investors should be aware that CoCo bonds, as complex and high-risk financial products, may be affected by various factors, including changes in market interest rates, the financial condition of Credit Suisse, profitability performance, and market sentiment. Investors should assess their risk tolerance and carefully consider relevant risks before investing.
In addition, investors should thoroughly review the offering documents of CoCo bonds, understand the terms and conditions, including conversion restrictions, call restrictions, and issuer’s rights and obligations, and seek professional financial advice when necessary. Investing in CoCo bonds may require a higher level of financial knowledge and experience for non-professional investors.
In conclusion, as a high-risk, high-yield financial product, investors should carefully consider the risks and returns of CoCo bonds, understand the relevant terms and conditions, and consult professional financial advisors before investing.
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