HSBC plans income opportunity CDs tied to Morningstar Wide Moat stocks

By Angela McDaniels

Tacoma, Wash., Nov. 29 - HSBC Bank USA, NA plans to price annual income opportunity certificates of deposit with auto cap feature due Dec. 29, 2017 linked to a basket of stocks, according to a term sheet.

The basket includes 12 common stocks that have received a Morningstar Economic Moat rating of "Wide" as of Nov. 16. The term sheet said there are two majority requirements for the rating: the prospect of earning above-average returns on capital and some competitive edge that prevents these returns from quickly eroding.

The stocks are Abbott Laboratories, Avon Products, Inc., CME Group Inc., Eli Lilly & Co., Exelon Corp., Exxon Mobil Corp., General Electric Co., KLA-Tencor Corp., Northern Trust Corp., Paychex Inc., Vulcan Materials Co. and Western Union Co.

The CDs will pay a coupon in December of each year equal to the average of the basket stocks' component returns, subject to a minimum of zero.

If a basket stock's underlying return is flat or positive, its component return will equal the auto cap rate, which is expected to be 7% to 10% and will be set at pricing. Otherwise, its component return will be the greater of its underlying return and negative 30%.

The payout at maturity will be par.

The CDs will be putable on Jan. 31. 2012, Jan. 31, 2013, Jan. 31, 2014, Jan. 30, 2015 and Jan. 29, 2016. Investors will receive the current market value of the CDs minus a redemption charge of 4% in year one, 3% in year two, 2% in year three and 1% in year four.

The CDs (Cusip 40431GJR1) will price Dec. 27 and settle Dec. 30.

HSBC Securities (USA) Inc. is the agent.

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