Rethink for hedge funds as CoCo market turns sour

Convertible arbitrage

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Investment bankers are well versed in exploiting gaps in accounting rules. The trouble is, in their quest to book fees, such loopholes can sometimes turn into nooses.

Contingent convertible bonds – commonly referred to as CoCo – have been popular with cash-hungry companies (see figure 1). The additional contingency in such bonds has allowed issuers to avoid taking an immediate hit to their earnings-per-share (EPS) – that is, avoid the accounting practice applied to plain vanilla

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