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AT1 bonds are the most subordinated form of bonds (and together with Tier 2 instruments are often called "bank capital" instruments) that rank senior only to equity. AT1 bonds have a Perpetual character (no fixed maturity), no incentive to redeem, and the payment of coupons is discretionary (coupons are paid if the bank has distributable reserves). AT1 bonds can absorb losses (be converted to equity or be written-down upon the trigger event) when the capital of the issuing financial institutions falls below a supervisor-determined level. The purpose of AT1 instruments is to have a buffer of a readily available source of capital that protects senior bondholders and depositors in times of crisis. In Europe, banks are required by the regulator to have a 1.5% of Risk Weighted Assets in the form of AT1 bonds.
Collateralized Bonds
Collateralised Debt Obligations ("CDO")
Collateralised Debt Obligations are structured products that are backed by other assets. A CDO can be thought of as a promise to pay investors in a prescribed sequence (tranching), based on the cash flow the CDO collects from the pool of bonds or other assets it owns.
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