HSBC 2001 Annual Report Download - page 185

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HSBC has securitised a designated portion of its corporate loan portfolio. The transaction was effected through a
declaration of trust in favour of Clover Securitisation Limited. Clover Securitisation Limited holds its beneficial
interest in the trust for Clover Funding No. 1 plc, Clover Funding No. 2 plc, Clover Funding No. 3 plc (collectively
‘Clover Funding’ ) and HSBC.
To fund the acquisition of this beneficial interest, Clover Funding has issued US$1,865 million floating rate notes
(‘FRN’ ). The offering circulars for the FRNs stated that they are the obligations of Clover Funding only and are not
guaranteed by, or the responsibility of, any other party. A linked presentation has been adopted in accordance with
FRS 5. Non-returnable proceeds of US$1,659 million received by HSBC from Clover Funding have been deducted
from ‘Loans and advances to customers’ . Clover Securitisation Limited has entered into swap agreements with
HSBC under which Clover Securitisation Limited pays the floating rate of interest on the loans and receives interest
linked to 3 month LIBOR. The proceeds generated from the loans are used in priority to meet the claims of the FRN
holders, and amounts payable in respect of the interest rate swap arrangements, after the payment of trustee and
administration expenses.
There is no provision whatsoever, either in the financing arrangements or otherwise, whereby HSBC has a right or
obligation either to keep the loans and advances on repayment of the finance or to repurchase them at any time other
than in certain circumstances where HSBC is in breach of warranty.
HSBC is not obliged to support any losses that may be suffered by the FRN holders and does not intend to provide
such support.
HSBC has taken up US$51 million of subordinated FRNs that are repayable after payments in respect of senior
FRNs, and has made subordinated loans to Clover Funding that are repayable after all other payments. Interest is
payable on the subordinated FRNs and subordinated loans conditional upon Clover Funding having funds available.
Clover Securitisation Limited’ s entire share capital is held by Clover Holdings Limited. Clover Funding’ s entire
share capital is held by Clover Holdings Limited. Clover Holdings Limited’ s entire share capital is held by trustees
under the terms of a trust for charitable purposes.
HSBC recognised net income of US$3 million, which comprised interest receivable of US$45 million and interest
payable and other expenses US$42 million, in respect of Clover Funding during the year.