Bank of Cyprus close to CoCos deal with investors

Holders of some 1.4 bln euros worth of Bank of Cyprus contingent convertible notes (CoCo bonds) hope to hear some good news from the bank on how to safeguard their securities, with the plan, as discussed with the Central Bank of Cyprus and inspectors from the Troika of international lenders, focusing on the conversion of the securities into equity.
The proposal is for the CoCos to be converted to BOCY shares at the current market price and bond holders to get a 4% interest coupon from a support fund. The payout will be once a year, probably every December, with the bank even trying to make a payment next month.
Such a solution would allow the bank to ringfence its Cocos from the rest of any potential bailout that it would need from the state to overcome the writedown of Greek sovereign bonds.
The Bank of Cyprus issued a statement on Friday saying that “the plan is in its final stage” of negotiation with the central bank and Troika officials and that it “will create better conditions for the current bond holders.”
Cocos are slightly different to regular convertible bonds in that the likelihood of the bonds converting to equity is "contingent" on a specified event, such as the stock price of the company exceeding a particular level for a certain period of time, according to the Financial Times lexicon.
They carry a distinct accounting advantage as unlike other kinds of convertible bonds, they do not have to be included in a company's diluted earnings per share until the bonds are eligible for conversion.
It is also a form of capital that regulators hope could help buttress a bank’s finances in times of stress.
CoCos are different to existing hybrids because they are designed to convert into shares if a pre-set trigger is breached in order to provide a shock boost to capital levels and reassure investors more generally.
Hybrids, including CoCos, contain features of both debt and equity. They are intended to act as a cushion between senior bondholders and shareholders, who will suffer first if capital is lost, as was the case of Bank of Cyprus. The bonds usually allow a bank to either hold on to the capital past the first repayment date, or to skip paying interest coupons on the notes.