HSBC plans upside-down equity basket notes linked to homebuilders

By Sheri Kasprzak

New York, Aug. 8 - With continued strife in the homebuilding market, HSBC USA Inc. announced plans to price upside-down equity basket notes linked to three homebuilders.

"There's nothing but bad news and more bad news in the housing market," said one market insider. "These are notes you want to buy if you feel these stocks are going to slide and with the housing market as it has been, I'd say that's a pretty good bet."

The notes are linked to the common shares of D.R. Horton, Inc.; Pulte Homes, Inc.; and Lennar Corp.

The six-month notes have a 20.4% coupon.

At maturity, investors will receive par if the final value of the best-performing stock is equal to or less than its initial value, or the official closing price of any stock remains equal to or less than its trigger level, 125% of its initial value, during the life of the notes.

If the final value of the best-performing stock is greater than its initial value and the closing price of any stock is greater than the trigger level on any trading day, investors will lose 1% for each 1% gain on the best-performing stock.

Stock performance

In July, D.R. Horton's stock traded between $16.32 on July 31 and $20.20 on July 6. So far this month, the stock has ranged between $16.40 on Aug. 1 and $18.59 on Aug. 8.

On Wednesday, the stock gained $1.20 to close at $18.59.

Pulte's stock traded in a range between $19.34 on July 31 and $23.31 on July 13 and so far this August, the stock has traded between $18.59 on Aug. 3 and $20.38 on Aug. 7.

Pulte's stock, on Wednesday, climbed by $1.47 to close at $21.85.

Lennar's stock traded between $30.66 on July 31 and $37.05 on July 6. So far this August, the stock has traded between $30.37 on Aug. 1 and $36.03 on Aug. 8.

On Wednesday, the company's stock gained $1.54 to close at $36.03.

Merrill prices S&P MidCap 400 notes

Elsewhere in structured products news, Merrill Lynch & Co. priced $78 million in Accelerated Return Notes linked to the S&P MidCap 400 index.

The one-year notes provide 3-to-1 upside exposure, subject to a 16.8% cap.

The notes pay par plus triple the principal amount times the ending level minus the initial level divided by the initial level if the ending index level is greater than the starting level.

If the ending level is less than the starting level, the investors will receive par times the ending value divided by the initial level.

The initial index level is 858.65.

On Wednesday, the index climbed by 11.25 to close at 869.71.

So far this August, the index has ranged between 840.53 on Aug. 3 and 865.80 on Aug. 2.

In July, the index traded between 856.33 on July 31 and 926.23 on July 13.

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