Coco is go go as Barclays boosts layer of loss-absorbing capital

Tim Wallace
Follow Tim
BARCLAYS is looking to raise at least $1bn (£661m) within the next week by issuing a second contingent convertible (coco) note.

It is buying back older tier two capital instruments and replacing them with the coco because of its loss-absorbing features.

Bank of America Merrill Lynch, BNP Paribas, Morgan Stanley and Wells Fargo are canvassing investors to gauge demand for the coco.

The bank raised $3bn in 10-year cocos in November to shore up its capital position, and found it was matched by strong demand from investors.

As this second issuance is replacing older instruments it will be sized according to demand.

The instruments typically convert from a debt security into equity if the bank gets into trouble and a set trigger point – for example a particular capital ratio – is reached.

But in Barclays’ case, its cocos will see investors wiped out if the trigger point – the capital ratio falling below seven per cent – is reached, rather than being converted into equity. The major lender hopes to sell the cocos either today or early next week.