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

By Marisa Wong

Madison, Wis., Dec. 6 - HSBC Bank USA, NA plans to price annual income opportunity certificates of deposit with minimum return due Dec. 28, 2020 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 Nov. 22. 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 Applied Materials, Inc., CME Group Inc./IL, Cisco Systems, Inc., Exelon Corp., Sysco Corp., Lockheed Martin Corp., McDonald's Corp., Altria Group, Inc., Monsanto Co. and Merck & Co., Inc.

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 0.4% to 0.5%. The exact minimum rate will be set at pricing.

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% and will be set at pricing. Otherwise, its component return will be the greater of its underlying return and negative 15%.

The payout at maturity will be par plus the final coupon.

The CDs are putable in whole at any time.

The CDs (Cusip: 40434AGT0) will price on Dec. 20 and settle on Dec. 26.

HSBC Securities (USA) Inc. is the agent. Advisors Asset Management, Inc. is the distributor.

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