It stands for principal write-down contingent convertible (CoCo); a contingent convertible in which the principal is written down (as a loss absorption mechanism), upon occurrence of a CoCo trigger, either full or partial. Most PWD CoCos are embedded with a full writedown feature. However, in specific situations, holders of CoCos would lose a specific percentage (e.g., 75%) of the face value (principal) and receive the remaining percentage in cash.

This loss absorption mechanism is, however, not easy in application as the issuer, that is already in distress, would have to fund a cash payout (of the remainder). With respect to this mechanism, CoCo holders and equity holders have conflicting interests. All else held constant, equity holders prefer PWD CoCos as a better means to avoid dilution and pass on the cost of the issuing bank’s financial distress to CoCo holders.