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HSBC plans CDs with step-up auto cap on Morningstar Wide Moat stocks
By Angela McDaniels
Tacoma, Wash., Aug. 1 - HSBC Bank USA, NA plans to price Annual Income Opportunity certificates of deposit with step-up auto cap rate due Aug. 28, 2019 linked to a basket of 10 common stocks, according to a term sheet.
The stocks are Amgen Inc., Applied Materials, Inc., Exelon Corp., General Electric Co., Intel Corp., Lorillard, Inc., PepsiCo, Inc., Pfizer Inc., Procter & Gamble Co. and Time Warner Cable Inc.
The stocks have received a Morningstar Economic Moat rating of "Wide" as of July 26. 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.
Interest is payable annually and will equal the average of the performances of the basket stocks, subject to a minimum interest rate of zero.
A stock's performance will be equal to the auto cap rate if its return is greater than or equal to zero. If a stock's return is less than zero, its performance will be the greater of its return and negative 30%. The auto cap rate is expected to be at least 5% for years one through four and at least 5.5% for years five through seven. The exact rates will be set at pricing.
The payout at maturity will be par plus the last coupon payment, if any.
The issuer said it is generally willing to repurchase CDs from depositors at any time. It will pay the early redemption amount, which equals par plus any interest due plus the early redemption fee and less an early withdrawal charge of 3% in year one, 2% in year two, 1% in year three and zero after that. The early redemption fee is the current market value of the CDs minus any interest due and minus the principal amount of the CDs.
The CDs will price Aug. 23 and settle Aug. 28.
HSBC Securities (USA) Inc. is the agent.
The Cusip number is 40431GZ85.
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