The conversion (of a CoCo debt into equity) that takes place at default (putting an end to the going concern status/ going concern capital), i.e., total loss, or larger losses (that are beyond small losses that do not necessitate a gone concern conversion). It constitutes a quasi-preparation stage for bankruptcy, that is completely independent of management decisions or any regulatory corrective action.

This conversion trigger would only be resorted to if evidence indicates that the lighter conversion (going concern conversion) did not “internalize” the costs of failure through the equity conversion-induced capital injection. Such a conversion is usually used to thwart the resolution of a systemically important financial institution (SIFI) or to enable or facilitate such a resolution or bankruptcy.