1521

We are seeking clarification regarding the CIC classification of contingent convertible bonds (“CoCos”).   In the Q&A document ref: CP-14-052_update-17-04-16, the following question 71 (row 72) was posed: “Should contingent convertible (CoCo) bonds be classified as CIC 22 or 25?”  EIOPA answered: “Contingent Convertible bonds (CoCo’s, or bail-in bonds) should be classified with CIC 22 as they are convertible. Please note that the definition of CIC 25 states “Corporate bonds that have debt and equity-like features, but are not convertible." We agree that contingent convertible bonds should not be classified as 25 based on the definition for CIC 25, but for the same reason (based on the definition) it is our understanding that CoCos are not properly classified as 22.  In general, CoCo’s are not convertible by the holder; rather, their conversion is mandatory (required by the issuer/terms of the bond) based on a solvency-related event or trigger.  The definition of a CIC 22 is for bonds “that the holder can convert”. We acknowledge this might be a close point, but we would appreciate EIOPA’s reconsideration of this classification issue in the interest of a standardized approach based on CIC definitions.