Swiss Sweeten Bank 'Coco' Bond Market

NEW YORK ( TheStreet) -- Credit Suisse ( CS) announced Monday that it issued $6.17 billion (CHF 6 billion) in contingent capital, or "coco" bonds, to bolster the bank's balance sheet and satisfy regulators' capital requirements.

Credit Suisse said that it sold $3.5 billion and CHF 2.5 billion in "Tier 1 buffer capital notes" to Qatar Holding and The Olayan Group, a Saudi investment vehicle. The notes have a coupon of USD 9.5% and CHF 9% each, a bank statement said, and are in exchange for $3.5 billion of and CHF 2.5 billion of Tier 1 capital notes issued in 2008.

"The completion of a transaction of this size supports our conviction that contingent capital can be a material source of capital for the banking industry and, in addition, that this will be an attractive instrument for the large group of current investors who hold existing hybrid capital instruments," said Credit Suisse CEO Brady W. Dougan in a statement.

Coco bonds are hybrid securities that convert into equity when, and if, a bank hits trouble and requires a capital boost. They have been pushed by international regulators as a way for banks to increase their capital requirements under Basel III without raising expensive equity.

Thus far coco bonds have had limited success in the banking industry, with Lloyd's Banking Group ( LYG) issuing $14 billion in the U.K., and Netherlands-based Rabobank issuing over $2 billion the securities last year.

However, the coco bond market is expected to increase this year as banks attempt to raise new capital. In December, Standard & Poor's reported that at least $1 trillion in coco bonds could be issued over the next five to 10 years.

"Investors in the new generation of bank hybrids will have a much higher risk/return profile than investors expected for 'legacy' hybrids," the S&P report said.

More from Stocks

Danica Patrick's Final Race at 2018 Indianapolis 500: What She Thinks About Cars

Danica Patrick's Final Race at 2018 Indianapolis 500: What She Thinks About Cars

Why The FANG Stocks' Dominance May Not Be So Bad For The Market

Why The FANG Stocks' Dominance May Not Be So Bad For The Market

At End of May, Investors Signalling They May Stay Away

At End of May, Investors Signalling They May Stay Away

Inside Carnival's Mind Blowing New Horizon Cruise Ship (Video)

Inside Carnival's Mind Blowing New Horizon Cruise Ship (Video)

Neel Kashkari: The Heart of Our Financial System Is More Radioactive Than Ever

Neel Kashkari: The Heart of Our Financial System Is More Radioactive Than Ever