Long-Term Debt

12 Months Ended

Dec. 31, 2011

Commercial Paper and Long-Term Debt [Abstract]

Long-Term Debt

11.    Long-Term Debt

Long-term debt consisted of the following:

At December 31,	2011			2010
	(in millions)
Senior debt:
Fixed rate:
Secured financings:
5.00% to 5.99%; due 2015 to 2022	$	270		$	373
Other fixed rate senior debt:
1.00% to 1.99%; due 2013 to 2014		16			3
2.00% to 2.99%; due 2013 to 2032		892			697
3.00% to 3.99%; due 2012 to 2016		534			440
4.00% to 4.99%; due 2011 to 2018		3,774			4,069
5.00% to 5.49%; due 2011 to 2021		8,042			11,613
5.50% to 5.99%; due 2011 to 2020		3,643			6,281
6.00% to 6.49%; due 2011 to 2033		3,334			6,165
6.50% to 6.99%; due 2011 to 2033		8			2,111
7.00% to 7.49%; due 2011 to 2032		1,724			1,864
7.50% to 7.99%; due 2012 to 2032		1,071			1,075
Variable interest rate:
Secured financings – .37% to 2.78%; due 2011 to 2023		3,045			3,509
Other variable interest rate senior debt – .43% to 5.94%; due 2011 to 2016		10,229			13,004
Subordinated debt		2,208			2,208
Junior subordinated notes issued to capital trusts		1,031			1,031
Unamortized discount		(67	)		(89	)
HSBC acquisition purchase accounting fair value adjustments		36			50
Total long-term debt	$	39,790		$	54,404

HSBC acquisition purchase accounting fair value adjustments represent adjustments which have been “pushed down” to record our long-term debt at fair value at the date of our acquisition by HSBC.

At December 31, 2011, long-term debt included carrying value adjustments relating to derivative financial instruments which increased the debt balance by $46 million and a foreign currency translation adjustment relating to our foreign denominated debt which increased the debt balance by $1.3 billion. At December 31, 2010, long-term debt included carrying value adjustments relating to derivative financial instruments which increased the debt balance by $34 million and a foreign currency translation adjustment relating to our foreign denominated debt which increased the debt balance by $2.1 billion.

At December 31, 2011 and 2010, we have elected fair value option accounting for certain of our fixed rate debt issuances. See Note 12, “Fair Value Option,” for further details. At December 31, 2011 and 2010, long-term debt totaling $13.7 billion and $20.8 billion, respectively, was carried at fair value.

Interest expense for long-term debt for continuing operations was $2.2 billion in 2011, $2.9 billion in 2010 and $3.5 billion in 2009. The weighted-average interest rates on long-term debt were 4.5 and 4.6 percent at December 31, 2011 and 2010, respectively, excluding HSBC acquisition purchase accounting adjustments. There are no restrictive financial covenants in any of our long-term debt agreements. Debt denominated in a foreign currency is included in the applicable rate category based on the effective U.S. dollar equivalent rate as summarized in Note 13, “Derivative Financial Instruments.”

During the second quarter of 2011, we decided to call $600 million of senior long-term debt. This transaction was completed during July 2011. This transaction was funded through a $600 million loan agreement with HSBC North America which provided for three $200 million borrowings with maturities between 2034 and 2035. As of December 31, 2011, $600 million was outstanding under this loan agreement.

During the fourth quarter of 2010, we offered noteholders of certain series of our debt the ability to exchange their existing senior notes for newly issued subordinated debt. As a result, we issued $1.9 billion in new 10-year fixed rate subordinated debt in exchange for tendered debt totaling $1.8 billion. Of the newly issued subordinated debt, $1.2 billion was recorded in long-term debt and $731 million was recorded in due to affiliates. In December 2010, we issued an additional $1.0 billion of 10-year fixed rate subordinated debt to institutional investors.

During 2010, we redeemed $1.0 billion of retail medium-term notes in four phases of approximately $250 million each. These redemptions were funded through a new $1.0 billion 364-day uncommitted revolving credit agreement with HSBC North America which was also executed during the third quarter of 2010 and allowed for borrowings with maturities of up to 15 years. During 2010, we borrowed $1.0 billion under this credit agreement with scheduled maturities between 2022 and 2025. In November 2010, we replaced the $1.0 billion outstanding under this loan through the issuance of preferred stock to HSBC Investments (North America) Inc. (“HINO”). See Note 15, “Redeemable Preferred Stock,” for additional information regarding this issuance of preferred stock.

Receivables we have sold in collateralized funding transactions structured as secured financings remain on our balance sheet. The entities used in these transactions are VIEs and we are deemed to be their primary beneficiary because we hold beneficial interests that expose us to the majority of their expected losses. Accordingly, we consolidate these entities and report the debt securities issued by them as secured financings in long-term debt. Secured financings previously issued under public trusts of $3.3 billion at December 31, 2011 are secured by $5.3 billion of closed-end real estate secured receivables, which are reported as receivables in the consolidated balance sheet. Secured financings previously issued under public trusts of $3.9 billion at December 31, 2010 are secured by $5.9 billion of closed-end real estate secured receivables. The holders of debt instruments issued by consolidated VIEs have recourse only to the receivables securing those instruments and have no recourse to our general credit.

The following table summarizes our junior subordinated notes issued to capital trusts (“Junior Subordinated Notes”) and the related company obligated mandatorily redeemable preferred securities (“Preferred Securities”):

	HSBC Finance Capital Trust IX (“HFCT IX”)
	(dollars are in millions)
Junior Subordinated Notes:
Principal balance	$1,031
Interest rate:
Through November 30, 2015	5.91%
December 1, 2015 through maturity	3-month LIBOR plus 1.926%
Redeemable by issuer	November 2015
Stated maturity	November 2035
Preferred Securities:
Rate:
Through November 30, 2015	5.91%
December 1, 2015 through maturity	3-month LIBOR plus 1.926%
Face value	$1,000
Issue date	November 2005

The Preferred Securities must be redeemed when the Junior Subordinated Notes are paid. The Junior Subordinated Notes have a stated maturity date, but are redeemable by us, in whole or in part, beginning on the dates indicated above at which time the Preferred Securities are callable at par ($25 per Preferred Security) plus accrued and unpaid dividends. Dividends on the Preferred Securities are cumulative, payable quarterly in arrears, and are deferrable at our option for up to five years. We cannot pay dividends on our preferred and common stocks during such deferments. The Preferred Securities have a liquidation value of $25 per preferred security. Our obligations with respect to the Junior Subordinated Notes, when considered together with certain undertakings of HSBC Finance Corporation with respect to HFCT IX, constitute full and unconditional guarantees by us of HFCT IX’s obligations under the Preferred Securities.

Maturities of long-term debt at December 31, 2011, including secured financings, conduit facility renewals and capital lease obligations were as follows:

	(in millions)
2012(1)	$	11,325
2013		6,961
2014		3,547
2015		5,559
2016		5,282
Thereafter		7,116
Total	$	39,790

⁽¹⁾  Weighted average interest rate on long-term debt maturing in 2012 is 4.51%.

Certain components of our long-term debt may be redeemed prior to its stated maturity.