HSBC plans four-year CDs linked to 12 Morningstar Wide Moat stocks

By Marisa Wong

Madison, Wis., June 2 - HSBC Bank USA, NA plans to price annual income opportunity certificates of deposit with auto cap feature due June 29, 2015 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 May 19. 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 CME Group Inc., Eli Lilly & Co., Exxon Mobil Corp., Intel Corp., Lockheed Martin Corp., Lowe's Cos., Inc., Microsoft Corp., Northern Trust Corp., Qualcomm, Inc., Sysco Corp., Time Warner Cable Inc. and Wal-Mart Stores, Inc.

The CDs will pay a coupon in June 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 4.5% to 6.5% 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 will be putable on July 31, 2012, July 31, 2013 and July 31, 2014. Investors will receive the current market value of the CDs.

The CDs (Cusip: 40431GTA7) will price on June 24 and settle on June 29.

HSBC Securities (USA) Inc. is the agent.

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