HSBC plans seven-year CDs linked to 10 Morningstar Wide Moat stocks

By Marisa Wong

Madison, Wis., Nov. 2 - HSBC Bank USA, NA plans to price annual income opportunity certificates of deposit with auto cap feature due Nov. 28, 2018 linked to a basket of stocks, according to a term sheet.

The basket includes 10 common stocks that have received a Morningstar Economic Moat rating of "Wide" as of Oct. 24. The term sheet said there are two major 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 Altria Group Inc., Bank of Montreal, CME Group Inc., eBay Inc., Eli Lilly & Co., Exelon Corp., Maxim Integrated Products, Inc., Monsanto Co., St. Jude Medical Inc. and Sysco Corp.

The CDs will pay a coupon in November 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 6.75% to 9.75% 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 plus the final coupon.

The CDs are putable at any time. Investors will receive the current market value of the CDs, subject to an early redemption charge of 3.5% in year one, 2.5% in year two, 1.5% in year three and 0.5% in year four. There is no early redemption charge for years five through seven.

The CDs (Cusip: 40431GB65) will price on Nov. 22 and settle on Nov. 28.

HSBC Securities (USA) Inc. is the agent.

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