This paper introduces, analyzes and values a new form of contingent convertible (CoCo), a Call Option Enhanced Reverse Convertible (COERC). Issued as a bond, it converts to new shareholders’ equity if a bank’s market value of capital falls below a pre-specified trigger. Unlike other CoCos, a substantial number of new shares are issued to COERC investors at conversion, but the bank’s original shareholders have the option torepurchase these shares at the bond’s par value to avoid heavy dilution. As a result, COERC investors would almost always receive their bond’s par value in cash at
conversion. Compared to other proposed forms of CoCos, the COERC avoids the problems with market based triggers such as “death spirals” as a result of manipulation or panic. A bank that issues COERCs also has a smaller incentive to choose investments that are subject to large losses. Furthermore, COERCs reduce the problem of “debt overhang,” the disincentive to replenish shareholders’ equity following a decline. The low risk of COERCS should increase their appeal to risk-averse bondholders.