It stands for contingent convertible debt; a debt (usually in the form of bonds/ CoCo bonds) that can convert to equity, or can be written-down, when a bank (the issuer) is under stress. Investors in CoCo bonds assume the de facto role of extending capital “insurance”, allowing their investments to be converted into equity, or to be written down, as a boost to capital at the time of need.
This form of contingent capital enables a bank to be recapitalized without any need to raise additional equity on the market or any from of bail out (by injecting public funds through the taxpayers).
