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After the initial news of the task force's direction earlier this month, a spokeswoman from General Motors Corp., a large CoCo issuer, said the company was "talking to policy makers" about the possible rule change. "I can't say we're in favor of this," she said. And last week, a spokesman repeated that the large auto maker plans to respond during the comment period between now and September.

Once more in English, and why this matters: Holders of convertible bonds, as the name implies, can convert those bonds into stock at a point when it is advantageous for them to do so. Contingent convertible bonds can be converted, too, but require the price of the underlying stock to rise sharply -- as much as 30% or more -- from where it was when the bond was issued. More to the point, here, however, is the difference in accounting for traditional convertible bonds and the contingent variety: The former require companies to account for the bonds as if they were converted from the day of issuance, meaning the bonds boost the company's overall shares in issuance and thus lower earnings per share, or EPS. But companies that sell CoCos don't need to count them toward overall shares unless the underlying stock price rises above its target, so selling the bonds doesn't necessarily dilute EPS.

THE DAYS OF no-dilution "CoCos" grow short.

U.S. accounting rule makers on Friday moved a step closer toward closing a loophole that critics say has boosted the use of certain convertible bonds by companies seeking low-cost financing.

The Financial Accounting Standards Board, at a meeting at its Norwalk, Conn., headquarters, decided to let its Emerging Issues Task Force continue deliberating a plan that would require companies to account for so-called contingent convertible bonds -- or CoCos, in Wall Street's lingo -- the same way they book regular convertibles.

Once more in English, and why this matters: Holders of convertible bonds, as the name implies, can convert those bonds into stock at a point when it is advantageous for them to do so. Contingent convertible bonds can be converted, too, but require the price of the underlying stock to rise sharply -- as much as 30% or more -- from where it was when the bond was issued. More to the point, here, however, is the difference in accounting for traditional convertible bonds and the contingent variety: The former require companies to account for the bonds as if they were converted from the day of issuance, meaning the bonds boost the company's overall shares in issuance and thus lower earnings per share, or EPS. But companies that sell CoCos don't need to count them toward overall shares unless the underlying stock price rises above its target, so selling the bonds doesn't necessarily dilute EPS.

Companies obviously love CoCos. In addition to not weighing on EPS, they also sport low interest rates, making them an attractive form of financing. And Wall Street likes what its customers like, as investment banks ring up fees for selling these popular bonds. Bear Stearns Cos. estimates more than 360 of the bonds have been sold since Tyco International Ltd. offered the first such bond in late 2000, and an FASB briefing paper estimates there are $90 billion of CoCos outstanding.

At a recent meeting, the FASB's task force recognized that contingent convertible bonds are designed to take advantage of the current accounting rules. The task force agreed that there is no economic difference between a straight convertible and a convertible that has a contingency twist. Therefore, according to its tentative decision, both types of convertibles should be accounted for in the same fashion: Both would dilute EPS.

The FASB's decision Friday to let its task force continue working on a plan that would require all convertible bonds to be booked the same way strongly suggests the FASB ultimately will require equivalent bookkeeping for both types of bonds.

Bear Stearns estimates that the rule change could reduce the earnings per share for companies issuing CoCos by an average of 5% this year and by 6% in 2005.

And last Wednesday, cruise operator Carnival Corp. said the rule change would reduce its previously projected third-quarter EPS by one cent to two cents and push earnings for the fiscal year two cents to three cents below prior estimates.

Today, FASB staff will post on the board's Web site the task force's proposal. The proposal, which will have a 45-day comment period, also would require companies to restate prior, diluted EPS to reflect the further dilution caused by already issued contingent convertibles.

Already, investment bankers are typing letters to oppose the proposed rule change. One typical defense holds that typical CoCo investors, such as hedge funds, almost never convert them into stock; instead, they resell the securities in the secondary market, so accounting rules shouldn't be changed to treat them as diluted shares.

Issuing companies also are likely to decry an FASB rule change.

After the initial news of the task force's direction earlier this month, a spokeswoman from General Motors Corp., a large CoCo issuer, said the company was "talking to policy makers" about the possible rule change. "I can't say we're in favor of this," she said. And last week, a spokesman repeated that the large auto maker plans to respond during the comment period between now and September.

Despite opposition, many analysts give the rule change a better- than-even chance of passing. Unless reasonable objections surface, the task force could finalize new accounting rules for CoCos at the group's next quarterly meeting in September.