HSBC plans annual income opportunity CDs linked to basket of Morningstar Wide Moat stocks

By Angela McDaniels

Tacoma, Wash., Sept. 2 - HSBC Bank USA, NA plans to price annual income opportunity certificates of deposit due Sept. 28, 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 Aug. 19. 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., International Game Technology, KLA-Tencor Corp., Northern Trust Corp., Vulcan Materials Co. and Western Union Co.

The CDs will pay a coupon in September of each year equal to the average of the basket stocks' returns, subject to a minimum of zero. The return of each stock will be subject to a floor of negative 30% and a cap of 7% to 10% that will be set at pricing.

The CDs will be putable on Oct. 31, 2011, Oct. 31, 2012, Oct. 31, 2013, Oct. 31, 2014, Oct. 30, 2015 and Oct. 31, 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. There is no charge in year five or six.

The CDs (Cusip: 40431GDW6) will price Sept. 24 and settle Sept. 29.

HSBC Securities (USA) Inc. is the agent.

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