Financial Literacy

Additional Tier 1 bonds (AT1s) are part of a family of bank capital securities known as contingent convertibles or ‘Cocos’. Convertible because they can be converted from bonds into equity (or written down entirely), and Contingent because that conversion only occurs if certain conditions are met, such as the issuing bank’s capital strength falling below a pre-determined trigger level.

Collateralised Loan Obligations, or CLOs, are bond instruments issued to fund a specific pool of loans, typically senior secured or ‘leveraged’ loans, to companies. The bonds are split into tranches that can carry different ratings (and yields) according to how senior they are in the CLO’s capital structure, normally from AAA notes at the top to equity notes at the bottom.