The information in this preliminary pricing supplement is not complete and may be changed. This preliminary pricing supplement is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to completion dated March 11, 2016.
Preliminary Pricing Supplement No. K643 Product Supplement No. I dated May 4, 2015, Prospectus Supplement dated May 4, 2015 and Prospectus dated May 4, 2015 | Filed Pursuant to Rule 424(b)(2) Registration Statement Nos. 333-202913 and 333-180300-03 March 11, 2016 |
Financial Products |
$ Linked to the Performance of a Weighted Basket Consisting of the SPDR® S&P 500® ETF Trust, the WisdomTree Europe Hedged Equity Fund, the iShares®MSCI Japan ETF, the iShares® MSCI Emerging Markets ETF and the Energy Select Sector SPDR®Fund |
General
| • | Investors will not receive any interest or dividend payments and may lose a significant portion of their principal at maturity. |
| • | The securities are for investors who seek a return linked to the performance of a weighted basket consisting of the SPDR® S&P 500® ETF Trust, the WisdomTree Europe Hedged Equity Fund, the iShares® MSCI Japan ETF, the iShares® MSCI Emerging Markets ETF and the Energy Select Sector SPDR® Fund, as set forth below, and who are willing to forego current income in exchange for the buffer feature. At maturity, if the Basket has appreciated in value, investors will receive the principal amount of their investment plus a return based on the upside performance of the Basket. If the Basket has depreciated in value, but has not declined by more than the Buffer Amount, investors will receive the principal amount of their investment. However, if the Basket has depreciated in value by more than the Buffer Amount, investors will lose 1% of their principal for every 1% decline beyond the Buffer Amount.You could lose up to between $780 and $810 per $1,000 principal amount. |
| • | Senior unsecured obligations of Credit Suisse, maturing March 21, 2019. Any payment on the securities is subject to our ability to pay our obligations as they become due. |
| • | Minimum purchase of $1,000. Minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof. |
| • | The securities are expected to price on or aboutMarch 18, 2016 (the “Trade Date”) and are expected to settle on or about March 23, 2016 (the “Settlement Date”). Delivery of the securities in book-entry form only will be made through The Depository Trust Company. |
| • | The securities will not be listed on any exchange. |
Investing in the securities involves a number of risks. See “Selected Risk Considerations” beginning on page 7 of this pricing supplement and “Risk Factors” beginning on page PS-3 of the accompanying product supplement.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities or passed upon the accuracy or the adequacy of this pricing supplement or the accompanying underlying supplement, the product supplement, the prospectus supplement and the prospectus. Any representation to the contrary is a criminal offense.
| Price to Public(1) | Underwriting Discounts and Commissions(2) | Proceeds to Issuer | |
| Per security | $1,000.00 | $ | $ |
| Total | $ | $ | $ |
(1) Certain fiduciary accounts may pay a purchase price of at least $993.00 per $1,000 principal amount of securities, and CSSU or any other agent will forgo any fees with respect to such sales.
(2) We or any agent (one of which may be our affiliate) may pay varying discounts and commissions of up to $7.00 per $1,000 principal amount of securities. For more detailed information, please see “Supplemental Plan of Distribution (Conflicts of Interest)” on the last page of this pricing supplement.
Credit Suisse Securities (USA) LLC (“CSSU”) is our affiliate. For more information, see “Supplemental Plan of Distribution (Conflicts of Interest)” on the last page of this pricing supplement.
Credit Suisse currently estimates the value of each $1,000 principal amount of the securities on the Trade Date will be between $950.00 and $980.00 (as determined by reference to our pricing models and the rate we are currently paying to borrow funds through issuance of the securities (our “internal funding rate”)). This range of estimated values reflects terms that are not yet fixed. A single estimated value reflecting final terms will be determined on the Trade Date. See “Selected Risk Considerations” in this pricing supplement.
The securities are not deposit liabilities and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency of the United States, Switzerland or any other jurisdiction.
Credit Suisse
March , 2016
Key Terms
| Issuer: | Credit Suisse AG (“Credit Suisse”), acting through its London branch | |||
| Basket: | The securities are linked to the performance of a weighted basket consisting of five Underlyings (each a “Basket Component,” and together, the “Basket Components”). For additional information on the Basket Components, see “The Reference Funds—The iShares® Funds—The iShares® MSCI Japan ETF,” “The Reference Funds —The iShares® Funds—The iShares® MSCI Emerging Markets ETF” and “The Reference Funds —The S&P SPDR® Funds—The Energy Select Sector SPDR® Fund” in the accompanying underlying supplement and “The Basket Components” in this pricing supplement. Each Basket Component is identified in the table below, together with its Bloomberg ticker symbol, Initial Level and Component Weighting: | |||
Basket Component | Ticker | Initial Level | Component Weighting | |
| SPDR® S&P 500® ETF Trust | SPY UP <Equity> | 35% | ||
| WisdomTree Europe Hedged Equity Fund | HEDJ UP <Equity> | 30% | ||
| iShares® MSCI Japan ETF | EWJ UP <Equity> | 15% | ||
| iShares® MSCI Emerging Markets ETF | EEM UP <Equity> | 10% | ||
| Energy Select Sector SPDR® Fund | XLE UP <Equity> | 10% | ||
| Redemption Amount: | At maturity, you will be entitled to receive a Redemption Amount in cash that will equal the principal amount of the securities you hold multiplied by the sum of one plus the Basket Return, calculated as set forth below. Any payment on the securities is subject to our ability to pay our obligations as they become due. | |||
| Basket Return: | • | If the Final Basket Level is equal to or greater than the Initial Basket Level, the Basket Return will equal an amount calculated as follows: |
| Final Basket Level – Initial Basket Level Initial Basket Level |
| • | If the Final Basket Level is less than the Initial Basket Level by not more than the Buffer Amount, the Basket Return will equal zero. | |
| • | If the Final Basket Level is less than the Initial Basket Level by more than the Buffer Amount, the Basket Return will be calculated as follows: |
| Final Basket Level – Initial Basket Level Initial Basket Level | + Buffer Amount |
| Buffer Amount: | Expected to be between 19% and 22% (to be determined on the Trade Date). | ||
| Initial Basket Level: | Set equal to 100 on the Trade Date. | ||
| Final Basket Level: | The level of the Basket on the Valuation Date, calculated as follows: | ||
| 100 × | [1 + | ((SPDR® S&P 500® ETF Trust Return × 0.35) + (WisdomTree Europe Hedged Equity Fund Return × 0.30) + (iShares® MSCI Japan ETF Return × 0.15) + (iShares® MSCI Emerging Markets ETF Return × 0.10) + (Energy Select Sector SPDR® Fund Return × 0.10))] | |
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| The “SPDR® S&P 500® ETF Trust Return,” the “WisdomTree Europe Hedged Equity Fund Return,” the “iShares® MSCI Japan ETF Return,” the “iShares® MSCI Emerging Markets ETF Return” and the “Energy Select Sector SPDR® Fund Return” are the respective Component Returns for each Basket Component. | |
| Component Return: | With respect to each Basket Component, the Component Return will be calculated as follows: |
| Final Level – Initial Level Initial Level | |
| Initial Level: | For each Basket Component, the closing level of such Basket Component on the Trade Date.In the event that the closing level for any Basket Component is not available on the Trade Date, the Initial Level for such Basket Component will be determined on the immediately following trading day on which a closing level for such Basket Component is available. |
| Final Level: | For each Basket Component, the closing level of such Basket Component on the Valuation Date. |
| Valuation Date: | March 18, 2019,subject to postponement as set forth in the accompanying product supplement under “Description of the Securities—Postponement of calculation dates.” |
| Maturity Date: | March 21, 2019,subject to postponement as set forth in the accompanying product supplement under “Description of the Securities—Postponement of calculation dates.” |
| CUSIP: | 22546VZ33 |
You may revoke your offer to purchase the securities at any time prior to the time at which we accept such offer on the date the securities are priced. We reserve the right to change the terms of, or reject any offer to purchase the securities prior to their issuance. In the event of any changes to the terms of the securities, we will notify you and you will be asked to accept such changes in connection with your purchase. You may also choose to reject such changes in which case we may reject your offer to purchase.
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Additional Terms Specific to the Securities
You should read this pricing supplement together with the underlying supplement dated May 4, 2015, the product supplement dated May 4, 2015, the prospectus supplement dated May 4, 2015 and the prospectus dated May 4, 2015, relating to our Medium-Term Notes of which these securities are a part. You may access these documents on the SEC website at www.sec.gov as follows (or if such address has changed, by reviewing our filings for the relevant date on the SEC website):
| • | Underlying supplement dated May 4, 2015: |
| http://www.sec.gov/Archives/edgar/data/1053092/000095010315003505/dp55844_424b2-underlying.htm |
| • | Product supplement No. I dated May 4, 2015: |
http://www.sec.gov/Archives/edgar/data/1053092/000095010315003534/dp55815_424b2-psno1.htm
| • | Prospectus supplement and Prospectus dated May 4, 2015: |
http://www.sec.gov/Archives/edgar/data/1053092/000104746915004333/a2224570z424b2.htm
In the event the terms of the securities described in this pricing supplement differ from, or are inconsistent with, the terms described in the underlying supplement, product supplement, prospectus supplement or prospectus, the terms described in this pricing supplement will control.
Our Central Index Key, or CIK, on the SEC website is 1053092. As used in this pricing supplement, “we,” “us,” or “our” refers to Credit Suisse.
This pricing supplement, together with the documents listed above, contains the terms of the securities and supersedes all other prior or contemporaneous oral statements as well as any other written materials including preliminary or indicative pricing terms, fact sheets, correspondence, trade ideas, structures for implementation, sample structures, brochures or other educational materials of ours. We may, without the consent of the registered holder of the securities and the owner of any beneficial interest in the securities, amend the securities to conform to its terms as set forth in this pricing supplement and the documents listed above, and the trustee is authorized to enter into any such amendment without any such consent. You should carefully consider, among other things, the matters set forth in “Selected Risk Considerations” in this pricing supplement and “Risk Factors” in the product supplement, “Foreign Currency Risks” in the accompanying prospectus, and any risk factors we describe in the combined Annual Report on Form 20-F of Credit Suisse Group AG and us incorporated by reference therein, and any additional risk factors we describe in future filings we make with the SEC under the Securities Exchange Act of 1934, as amended, as the securities involve risks not associated with conventional debt securities. You should consult your investment, legal, tax, accounting and other advisors before deciding to invest in the securities.
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Hypothetical Redemption Amounts at Maturity
The table and examples below illustrate hypothetical Redemption Amounts payable at maturity on a $1,000 investment in the securities for a hypothetical range of performance of the Basket. The table and examples below assume a Buffer Amount of 20.50% (the midpoint of the expected range set forth in “Key Terms” herein). The actual Buffer Amount will be determined on the Trade Date. The hypothetical Redemption Amounts set forth below are for illustrative purposes only. The actual Redemption Amount applicable to a purchaser of the securities will be based on the Final Basket Level. It is not possible to predict whether or by how much the Final Basket Level will be less than the Initial Basket Level by more than the Buffer Amount. You should consider carefully whether the securities are suitable to your investment goals. Any payment on the securities is subject to our ability to pay our obligations as they become due. The numbers appearing in the table and examples below have been rounded for ease of analysis.
Percentage Change | Basket | Redemption |
| 100.00% | 100.00% | $2,000.00 |
| 90.00% | 90.00% | $1,900.00 |
| 80.00% | 80.00% | $1,800.00 |
| 70.00% | 70.00% | $1,700.00 |
| 60.00% | 60.00% | $1,600.00 |
| 50.00% | 50.00% | $1,500.00 |
| 40.00% | 40.00% | $1,400.00 |
| 30.00% | 30.00% | $1,300.00 |
| 20.00% | 20.00% | $1,200.00 |
| 10.00% | 10.00% | $1,100.00 |
| 5.00% | 5.00% | $1,050.00 |
| 0.00% | 0.00% | $1,000.00 |
| −5.00% | 0.00% | $1,000.00 |
| −10.00% | 0.00% | $1,000.00 |
| −20.00% | 0.00% | $1,000.00 |
| −20.50% | 0.00% | $1,000.00 |
| −21.50% | −1.00% | $990.00 |
| −30.00% | -9.50% | $905.00 |
| −40.00% | -19.50% | $805.00 |
| −50.00% | -29.50% | $705.00 |
| −60.00% | -39.50% | $605.00 |
| −70.00% | -49.50% | $505.00 |
| −80.00% | -59.50% | $405.00 |
| −90.00% | -69.50% | $305.00 |
| −100.00% | -79.50% | $205.00 |
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The following examples illustrate how the Redemption Amount is calculated.
Example 1: Example 1 assumes the level of the Basket increases by 80% from the Initial Basket Level to the Final Basket Level. The determination of the Redemption Amount when the Final Basket Level is equal to or greater than the Initial Basket Level is as follows:
| Basket Return | = | (Final Basket Level - Initial Basket Level) / Initial Basket Level |
| = | 80% | |
| Redemption Amount | = | $1,000 × (1 + Basket Return) |
| = | $1,000 × 1.80 | |
| = | $1,800 |
In this example, at maturity you would be entitled to receive a Redemption Amount equal to $1,800 per $1,000 principal amount of securities based on a return linked to the appreciation in the level of the Basket.
Example 2: Example 2 assumes the level of the Basket decreases by 10% from the Initial Basket Level to the Final Basket Level. Because the Final Basket Level is less than the Initial Basket Level by not more than the Buffer Amount of 20.50%, at maturity you would be entitled to receive a Redemption Amount equal to $1,000 per $1,000 principal amount of securities.
Example 3: Example 3 assumes the level of the Basket decreases by 50% from the Initial Basket Level to the Final Basket Level. The determination of the Redemption Amount when the Final Basket Level is less than the Initial Basket Level by more than the Buffer Amount of 20.50% is as follows:
| Basket Return | = | [(Final Basket Level - Initial Basket Level)/Initial Basket Level] + Buffer Amount |
| = | −50% + 20.50% | |
| = | −29.50% | |
| Redemption Amount | = | $1,000 × (1 + Basket Return) |
| = | $1,000 × 0.705 | |
| = | $705 |
In this example, at maturity you would be entitled to receive a Redemption Amount equal to $705 per $1,000 principal amount of securities because the Final Basket Level is less than the Initial Basket Level by more than the Buffer Amount. You will be exposed to any depreciation in the level of the Basket beyond the Buffer Amount.
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Selected Risk Considerations
An investment in the securities involves significant risks. Investing in the securities is not equivalent to investing directly in the Basket or in any of the Basket Components. These risks are explained in more detail in the “Risk Factors” section of the accompanying product supplement.
| • | YOUR INVESTMENT IN THE SECURITIES MAY RESULT IN A LOSS — If the Final Basket Level is less than the Initial Basket Level by more than the Buffer Amount, which is expected to be between 19% and 22% (to be determined on the Trade Date), you will lose 1% of your principal for each 1% decline in the Final Basket Level as compared to the Initial Basket Level beyond the Buffer Amount. You could lose up to between $780 and $810 per $1,000 (to be determined on the Trade Date) principal amount of securities. Any payment on the securities is subject to our ability to pay our obligations as they become due. |
| Furthermore, regardless of the amount of any payment you receive on the securities you may nevertheless suffer a loss on your investment in the securities, in real value terms. This is because inflation may cause the real value of the amount of any payment you receive on the securities to be less at maturity than it is at the time you invest, and because an investment in the securities represents a forgone opportunity to invest in an alternative asset that does generate a positive real return. You should carefully consider whether an investment that may not provide for any return on your investment, or may provide a return that is lower than the return on alternative investments, is appropriate for you. |
| • | THE SECURITIES ARE SUBJECT TO THE CREDIT RISK OF CREDIT SUISSE — Investors are dependent on our ability to pay all amounts due on the securities and, therefore, if we were to default on our obligations, you may not receive any amounts owed to you under the securities. In addition, any decline in our credit ratings, any adverse changes in the market’s view of our creditworthiness or any increase in our credit spreads is likely to adversely affect the value of the securities prior to maturity. |
| • | THE SECURITIES DO NOT PAY INTEREST — We will not pay interest on the securities. You may receive less at maturity than you could have earned on ordinary interest-bearing debt securities with similar maturities, including other of our debt securities, since the Redemption Amount is based on the performance of the Basket. Because the Redemption Amount may be less than the amount originally invested in the securities, the return on the securities (the effective yield to maturity) may be negative. Even if it is positive, the return payable on each security may not be enough to compensate you for any loss in value due to inflation and other factors relating to the value of money over time. |
| • | MORE FAVORABLE TERMS TO YOU ARE GENERALLY ASSOCIATED WITH A BASKET COMPONENT WITH GREATER EXPECTED VOLATILITY AND THEREFORE CAN INDICATE GREATER RISK OF LOSS— “Volatility” refers to the frequency and magnitude of changes in the price of the Basket Components. The greater the expected volatility with respect to a Basket Component on the Trade Date, the higher the expectation as of the Trade Date that the Final Basket Level could be less than the Initial Basket Level by more than the Buffer Amount, indicating a higher expected risk of loss on the notes. This greater expected risk will generally be reflected in more favorable terms (such as a higher Buffer Amount) than for similar securities linked to the performance of the Basket Components with a lower expected volatility as of the Trade Date. You should therefore understand that a relatively higher Buffer Amount may not necessarily indicate that the notes have a greater likelihood of a return of principal at maturity. The volatility of the Basket Components can change significantly over the term of the notes. The level of the Basket Components for your notes could fall sharply, which could result in a significant loss of principal. You should be willing to accept the downside market risk of the Underlying and the potential to lose some or all of your principal at maturity. |
| • | CHANGES IN THE VALUES OF THE BASKET COMPONENTS MAY OFFSET EACH OTHER —Movements in the level of the Basket Components may not correlate with each other. At a time when the value of one or more of the Basket Components increases, the level of one or more of the other Basket Components may not increase as much or may even decline. Therefore, in calculating the |
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Basket Return, increases in the level of one or more of the Basket Components may be moderated, or more than offset, by lesser increases or declines in the level of the other Basket Components.
| • | THERE ARE RISKS ASSOCIATED WITH THE BASKET COMPONENTS— Although shares of the Basket Components are listed for trading on the NYSE Arca, Inc. (“NYSE Arca”) and a number of similar products have been traded on various national securities exchanges for varying periods of time, there is no assurance that an active trading market will continue for the shares of each Basket Component or that there will be liquidity in the trading market. Each Basket Component is subject to management risk, which is the risk that such Basket Component’s investment strategy, the implementation of which is subject to a number of constraints, may not produce the intended results. Pursuant to each Basket Component's investment strategy or otherwise, the investment advisor for such Basket Component may add, delete or substitute the equity securities held by such Basket Component. Any of these actions could adversely affect the price of the shares of each Basket Component and consequently the value of the securities. |
| • | THE PERFORMANCE AND MARKET VALUE OF EACH BASKET COMPONENT, PARTICULARLY DURING PERIODS OF MARKET VOLATILITY, MAY NOT CORRELATE TO THE PERFORMANCE OF ITS TRACKED INDEX — Each Basket Component will generally invest in all of the equity securities included in the index tracked by such Basket Component (each such index, a “Tracked Index”), but may not fully replicate such Tracked Index. There may be instances where a Basket Component’s investment advisor may choose to overweight another stock in such Basket Component’s Tracked Index, purchase securities not included in such Basket Component’s Tracked Index that the investment advisor believes are appropriate to substitute for a security included in such Tracked Index or utilize various combinations of other available investment techniques. In addition, the performance of each Basket Component will reflect additional transaction costs and fees that are not included in the calculation of such Basket Component’s Tracked Index. Finally, because the shares of each Basket Component are traded on the NYSE Arca and are subject to market supply and investor demand, the market value of one share of each Basket Component may differ from the net asset value per share of such Basket Component. |
| During periods of market volatility, securities held by each Basket Component may be unavailable in the secondary market, market participants may be unable to calculate accurately the net asset value per share of such Basket Component and the liquidity of such Basket Component may be adversely affected. This kind of market volatility may also disrupt the ability of market participants to create and redeem shares in each Basket Component. Further, market volatility may adversely affect, sometimes materially, the prices at which market participants are willing to buy and sell shares of each Basket Component. As a result, under these circumstances, the market value of shares of each Basket Component may vary substantially from the net asset value per share of such Basket Component. For all the foregoing reasons, the performance of each Basket Component may not correlate with the performance of its Tracked Index. For additional information about the variation between the performance of each Basket Component and the performance of its Tracked Index, see the information set forth under“The Reference Funds—The iShares® Funds—The iShares® MSCI Japan ETF,” “The Reference Funds —The iShares® Funds—The iShares® MSCI Emerging Markets ETF” and “The Reference Funds —The S&P SPDR® Funds—The Energy Select Sector SPDR® Fund” in the accompanying underlying supplement and “The Basket Components” herein. |
| • | EMERGING MARKETS RISK — The iShares® MSCI Emerging Markets ETF and its Tracked Index are exposed to the political and economic risks of emerging market countries. In recent years, some emerging markets have undergone significant political, economic and social upheaval. Such far-reaching changes have resulted in constitutional and social tensions and, in some cases, instability and reaction against market reforms has occurred. With respect to any emerging market nation, there is the possibility of nationalization, expropriation or confiscation, political changes, government regulation and social instability. There can be no assurance that future political changes will not adversely affect the economic conditions of an emerging market nation. Political or economic instability could have an adverse effect on the performance of the securities. |
| • | CURRENCY EXCHANGE RISK— Because the prices of the equity securities included in the WisdomTree Europe Hedged Equity Fund, the iShares®MSCI Japan ETF and the iShares® MSCI Emerging Markets ETF are converted into U.S. dollars for purposes of calculating the levels of the |
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WisdomTree Europe Hedged Equity Fund, the iShares® MSCI Japan ETF and the iShares® MSCI Emerging Markets ETF, investors will be exposed to currency exchange rate risk with respect to each of the currencies in which the equity securities included in the WisdomTree Europe Hedged Equity Fund, the iShares® MSCI Japan ETF and the iShares® MSCI Emerging Markets ETF trade. Currency exchange rates may be highly volatile, particularly in relation to emerging or developing nations’ currencies and, in certain market conditions, also in relation to developed nations’ currencies. Significant changes in currency exchange rates, including changes in liquidity and prices, can occur within very short periods of time. Currency exchange rate risks include, but are not limited to, convertibility risk, market volatility and potential interference by foreign governments through regulation of local markets, foreign investment or particular transactions in foreign currency. These factors may adversely affect the values of the equity securities included in the WisdomTree Europe Hedged Equity Fund, the iShares® MSCI Japan ETF and the iShares® MSCI Emerging Markets ETF, the level of the WisdomTree Europe Hedged Equity Fund, the iShares® MSCI Japan ETF and the iShares® MSCI Emerging Markets ETF and the value of the securities.
| • | THE CURRENCY HEDGE EMPLOYED BY THE WISDOMTREE EUROPE HEDGED EQUITY FUND MAY NOT SUFFICIENTLY REDUCE ITS EXPOSURE TO CURRENCY FLUCTUATIONS — The net asset value of the WisdomTree Europe Hedged Equity Fund is based on the U.S. dollar value of the stocks held by the WisdomTree Europe Hedged Equity Fund, which trade in euro, and the returns on the foreign currency forward or futures contracts entered into by the WisdomTree Europe Hedged Equity Fund. The WisdomTree Europe Hedged Equity Fund enters into foreign currency forward or futures contracts in an attempt to mitigate the impact of euro-U.S. dollar currency fluctuations on its performance. However, this approach may not eliminate the exposure of the WisdomTree Europe Hedged Equity Fund to the euro-U.S. dollar exchange rate. Exchange rate movements are volatile, as discussed in the “Currency Exchange Risk.” The return of the foreign currency forward or futures contracts may not successfully offset the actual fluctuations between the euro and the U.S. dollar. As a result, the holders of the securities will still likely be exposed to currency exchange rate risk with respect to the euro-U.S. dollar exchange rate. The extent of your exposure will depend on the extent to which the currency hedge strategy employed by the WisdomTree Europe Hedged Equity Fund is able to mitigate currency fluctuations and the extent to which the euro strengthens or weakens against the U.S. dollar. If the U.S. dollar strengthens against the euro, the price of shares of the WisdomTree Europe Hedged Equity Fund could be adversely affected and your payment at maturity on the securities may be reduced. |
| • | RISKS ASSOCIATED WITH INVESTMENTS IN SECURITIES LINKED TO THE PERFORMANCE OF FOREIGN EQUITY SECURITIES — The equity securities included in the the WisdomTree Europe Hedged Equity Fund, the iShares® MSCI Japan ETF and the iShares® MSCI Emerging Markets ETF are issued by foreign companies and trade in foreign securities markets. Investments in securities linked to the value of foreign equity securities involve risks associated with the securities markets in those countries, including the risk of volatility in those markets, governmental intervention in those markets and cross-shareholdings in companies in certain countries. Foreign companies are subject to accounting, auditing and financial reporting standards and requirements different from those applicable to U.S. reporting companies. |
| • | The Stocks Included in THE ENERGY SELECT SECTOR SPDR® fUND are Concentrated in One Particular Sector— All of the stocks included in the Energy Select Sector SPDR® Fund are issued by companies in the energy sector. As a result, the stocks that will determine the performance of the Energy Select Sector SPDR® Fund are concentrated in the energy sector. Although an investment in the securities will not give holders any ownership or other direct interests in the stocks held by the Energy Select Sector SPDR® Fund, the return on an investment in the securities will be subject to certain risks associated with a direct equity investment in companies in the energy sector. Accordingly, by investing in the securities, you will not benefit from the diversification which could result from an investment linked to companies that operate in a broader range of sectors. |
| • | THE ESTIMATED VALUE OF THE SECURITIES ON THE TRADE DATE MAY BE LESS THAN THE PRICE TO PUBLIC— The initial estimated value of your securities on the Trade Date (as determined by reference to our pricing models and our internal funding rate) may be significantly less than the original Price to Public. The Price to Public of the securities includes the agent’s discounts or |
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commissions as well as transaction costs such as expenses incurred to create, document and market the securities and the cost of hedging our risks as issuer of the securities through one or more of our affiliates (which includes a projected profit). These costs will be effectively borne by you as an investor in the securities. These amounts will be retained by Credit Suisse or our affiliates in connection with our structuring and offering of the securities (except to the extent discounts or commissions are reallowed to other broker-dealers or any costs are paid to third parties).
| On the Trade Date, we value the components of the securities in accordance with our pricing models. These include a fixed income component valued using our internal funding rate, and individual option components valued using mid-market pricing. As such, the payout on the Securities can be replicated using a combination of these components and the value of these components, as determined by us using our pricing models, will impact the terms of the Securities at issuance. Our option valuation models are proprietary. Our pricing models take into account factors such as interest rates, volatility and time to maturity of the securities, and they rely in part on certain assumptions about future events, which may prove to be incorrect. |
| Because Credit Suisse’s pricing models may differ from other issuers’ valuation models, and because funding rates taken into account by other issuers may vary materially from the rates used by Credit Suisse (even among issuers with similar creditworthiness), our estimated value at any time may not be comparable to estimated values of similar securities of other issuers. |
| • | EFFECT OF INTEREST RATE USED IN STRUCTURING THE SECURITIES — The internal funding rate we use in structuring notes such as these securities is typically lower than the interest rate that is reflected in the yield on our conventional debt securities of similar maturity in the secondary market (our “secondary market credit spreads”). If on the Trade Date our internal funding rate is lower than our secondary market credit spreads, we expect that the economic terms of the securities will generally be less favorable to you than they would have been if our secondary market credit spread had been used in structuring the securities. We will also use our internal funding rate to determine the price of the securities if we post a bid to repurchase your securities in secondary market transactions. See “—Secondary Market Prices” below. |
| • | SECONDARY MARKET PRICES— If Credit Suisse (or an affiliate) bids for your securities in secondary market transactions, which we are not obligated to do, the secondary market price (and the value used for account statements or otherwise) may be higher or lower than the Price to Public and the estimated value of the securities on the Trade Date. The estimated value of the securities on the cover of this pricing supplement does not represent a minimum price at which we would be willing to buy the securities in the secondary market (if any exists) at any time. The secondary market price of your securities at any time cannot be predicted and will reflect the then-current estimated value determined by reference to our pricing models and other factors. These other factors include our internal funding rate, customary bid and ask spreads and other transaction costs, changes in market conditions and any deterioration or improvement in our creditworthiness. In circumstances where our internal funding rate is lower than our secondary market credit spreads, our secondary market bid for your securities could be more favorable than what other dealers might bid because, assuming all else equal, we use the lower internal funding rate to price the securities and other dealers might use the higher secondary market credit spread to price them. Furthermore, assuming no change in market conditions from the Trade Date, the secondary market price of your securities will be lower than the Price to Public because it will not include the agent’s discounts or commissions and hedging and other transaction costs. If you sell your securities to a dealer in a secondary market transaction, the dealer may impose an additional discount or commission, and as a result the price you receive on your securities may be lower than the price at which we may repurchase the securities from such dealer. |
| We (or an affiliate) may initially post a bid to repurchase the securities from you at a price that will exceed the then-current estimated value of the securities. That higher price reflects our projected profit and costs that were included in the Price to Public, and that higher price may also be initially used for account statements or otherwise. We (or our affiliate) may offer to pay this higher price, for your benefit, but the amount of any excess over the then-current estimated value will be temporary and is expected to decline over a period of approximately 90 days. |
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| The securities are not designed to be short-term trading instruments and any sale prior to maturity could result in a substantial loss to you. You should be willing and able to hold your securities to maturity. |
| • | CREDIT SUISSE IS SUBJECT TO SWISS REGULATION — As a Swiss bank, Credit Suisse is subject to regulation by governmental agencies, supervisory authorities and self-regulatory organizations in Switzerland. Such regulation is increasingly more extensive and complex and subjects Credit Suisse to risks. For example, pursuant to Swiss banking laws, the Swiss Financial Market Supervisory Authority (FINMA) may open resolution proceedings if there are justified concerns that Credit Suisse is over-indebted, has serious liquidity problems or no longer fulfills capital adequacy requirements. FINMA has broad powers and discretion in the case of resolution proceedings, which include the power to convert debt instruments and other liabilities of Credit Suisse into equity and/or cancel such liabilities in whole or in part. If one or more of these measures were imposed, such measures may adversely affect the terms and market value of the securities and/or the ability of Credit Suisse to make payments thereunder and you may not receive any amounts owed to you under the securities. |
| • | POTENTIAL CONFLICTS—We and our affiliates play a variety of roles in connection with the issuance of the securities, including acting as calculation agent and as agent of the issuer for the offering of the securities, hedging our obligations under the securities and determining their estimated value. In performing these duties, the economic interests of us and our affiliates are potentially adverse to your interests as an investor in the securities. Further, hedging activities may adversely affect any payment on or the value of the securities. Any profit in connection with such hedging activities will be in addition to any other compensation that we and our affiliates receive for the sale of the securities, which creates an additional incentive to sell the securities to you. |
| • | LACK OF LIQUIDITY — The securities will not be listed on any securities exchange. Credit Suisse (or its affiliates) intends to offer to purchase the securities in the secondary market but is not required to do so. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the securities when you wish to do so. Because other dealers are not likely to make a secondary market for the securities, the price at which you may be able to trade your securities is likely to depend on the price, if any, at which Credit Suisse (or its affiliates) is willing to buy the securities. If you have to sell your securities prior to maturity, you may not be able to do so or you may have to sell them at a substantial loss. |
| • | UNPREDICTABLE ECONOMIC AND MARKET FACTORS WILL AFFECT THE VALUE OF THE SECURITIES — The payout on the Securities can be replicated using a combination of the components described in "The estimated value of the Securities on the Trade Date may be less than the Price to Public". Therefore, in addition to the level of the Basket, the terms of the securities at issuance and the value of the securities prior to maturity may be influenced by factors that impact the value of fixed income securities and options in general, such as: |
| o | the expected and actual volatility of the Basket and the Basket Components; |
| o | the expected and actual correlation, if any, between the Basket Components; |
| o | the time to maturity of the securities; |
| o | the dividend rate on the equity securities included in the Basket Components; |
| o | the exchange rates between the U.S. dollar and the non-U.S. currencies in which the equity securities underlying the Basket Components are traded; |
| o | interest and yield rates in the market generally; |
| o | investors’ expectations with respect to the rate of inflation; |
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| o | geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the equity securities held by the Basket or markets generally and which may affect the level of the Basket; and |
| o | our creditworthiness, including actual or anticipated downgrades in our credit ratings. |
Some or all of these factors may influence the price that you will receive if you choose to sell your securities prior to maturity. The impact of any of the factors set forth above may enhance or offset some or all of any change resulting from another factor or factors.
| • | NO OWNERSHIP RIGHTS RELATING TO THE BASKET COMPONENTS — Your return on the securities will not reflect the return you would realize if you actually owned shares of the Basket Components or the assets that comprise the Basket Components. The return on your investment is not the same as the total return based on the purchase of shares of the Basket Components or the assets that comprise the Basket Components. |
| • | NO VOTING RIGHTS OR DIVIDEND PAYMENTS — As a holder of the securities, you will not have voting rights or rights to receive cash dividends or other distributions or other rights with respect to the shares included in the Basket. |
| • | ANTI-DILUTION PROTECTION IS LIMITED — The Calculation Agent will make anti-dilution adjustments for certain events affecting each of the Basket Components. However, an adjustment will not be required in response to all events that could affect each of the Basket Components. If an event occurs that does not require the Calculation Agent to make an adjustment, or if an adjustment is made but such adjustment does not fully reflect the economics of such event, the value of the securities may be materially and adversely affected. See “Description of the Securities—Adjustments —For a reference fund” in the accompanying product supplement. |
Supplemental Use of Proceeds and Hedging
We intend to use the proceeds of this offering for our general corporate purposes, which may include the refinancing of existing debt outside Switzerland. Some or all of the proceeds we receive from the sale of the securities may be used in connection with hedging our obligations under the securities through one or more of our affiliates. Such hedging or trading activities on or prior to the Trade Date and during the term of the securities (including on the Valuation Date) could adversely affect the value of the Basket and, as a result, could decrease the amount you may receive on the securities at maturity. For additional information, see “Supplemental Use of Proceeds and Hedging” in the accompanying product supplement.
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Historical Information
The following graphs set forth the historical performance of the Basket Components, as well as the Basket as a whole, based on the closing levels and closing prices of the Basket Components. The Basket graph sets forth the historical performance of the Basket from January 3, 2011 through March 9, 2016. The graph of the historical Basket performance assumes the Basket Level on March 9, 2016 was 100 and the Component Weightings were as specified on the cover of this pricing supplement. The Basket Component graphs set forth the historical performance of the Basket Components from January 3, 2011 through March 9, 2016. The closing level of one share of the SPDR® S&P 500® ETF Trust on March 9, 2016 was $199.41. The closing level of one share of the WisdomTree Europe Hedged Equity ETF on March 9, 2016 was $51.57. The closing level of one share of the iShares® MSCI Japan ETF on March 9, 2016 was $11.28. The closing level of one share of the iShares® MSCI Emerging Markets ETF on March 9, 2016 was $32.41. The closing level of one share of the Energy Select Sector SPDR® Fund on March 9, 2016 was $60.74. We obtained the historical information below from Bloomberg, without independent verification.
You should not take the historical levels of the Basket Components as an indication of future performance of the Basket Components or the securities. Any historical trend in the levels of the Basket Components during any period set forth below is not an indication that the levels of the Basket Components are more or less likely to increase or decrease at any time over the term of the securities.
For additional information on the Basket Components, see “The Reference Funds—The iShares® Funds—The iShares® MSCI Japan ETF,” “The Reference Funds —The iShares® Funds—The iShares® MSCI Emerging Markets ETF” and “The Reference Funds —The S&P SPDR® Funds—The Energy Select Sector SPDR® Fund” in the accompanying underlying supplement and “The Basket Components” herein.
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The Basket Components
TheSPDR® S&P 500® ETF Trust
We have derived all information contained herein regarding the SPDR® S&P 500® ETF Trust (formerly the SPDR Trust, Series I; the “SPDR 500 Trust”) from publicly available information. Such information reflects the policies of, and is subject to change by, PDR Services LLC, the sponsor of the SPDR 500 Trust and State Street Bank and Trust Company, the trustee of the SPDR 500 Trust (the “Trustee”). We have not conducted any independent review or due diligence of any publicly available information with respect to the SPDR® S&P 500® ETF Trust.
The SPDR 500 Trust is a unit investment trust that issues depositary receipts of the SPDR 500 Trust (the “SPDRs”), each of which represents a fractional undivided ownership interest in the SPDR 500 Trust. The SPDR 500 Trust is designed to generally correspond to the price and yield performance, before fees and expenses, of the S&P 500® Index. The Trustee on a nondiscretionary basis adjusts the composition of the portfolio of stocks held by the SPDR 500 Trust to conform to changes in the composition and/or weighting structure of the S&P 500® Index. Although the SPDR 500 Trust may at any time fail to own certain securities included within the S&P 500® Index, the SPDR 500 Trust will be substantially invested in the constituent stocks of the S&P 500® Index. For additional information about the S&P 500® Index, see “The Reference Indices—The S&P Dow Jones Indices—The S&P 500® Index” in the accompanying underlying supplement.
Information filed by the SPDR 500 Trust with the SEC under the Securities Exchange Act and the Investment Company Act can be found by reference to its SEC file number: 001-11672 and 811-06125. Shares of the SPDR 500 Trust are listed on the NYSE Arca under ticker symbol “SPY UP <Equity>.” Information from outside sources is not incorporated by reference in, and should not be considered part of, this pricing supplement or any accompanying prospectus.
The WisdomTree Europe Hedged Equity Fund
The WisdomTree Europe Hedged Equity Fund is an investment portfolio managed by WisdomTree Trust. WisdomTree Asset Management, Inc. is the investment adviser to the WisdomTree Europe Hedged Equity Fund.
WisdomTree Trust is a registered investment company that consists of numerous separate investment portfolios, including the WisdomTree Europe Hedged Equity Fund. Information provided to or filed with the SEC by WisdomTree Trust pursuant to the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, can be located by reference to SEC file numbers 333-132380 and 811-21864, respectively, through the SEC’s website at http://www.sec.gov. In addition, information may be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated documents. The WisdomTree Europe Hedged Equity Fund trades on the NYSE Arca under the ticker symbol “HEDJ.”
The WisdomTree Europe Hedged Equity Fund is an exchange-traded fund that seeks investment results that, before fees and expenses, generally correspond to the performance of the WisdomTree Europe Hedged Equity Index. The WisdomTree Europe Hedged Equity Fund generally uses a representative sampling strategy to achieve its investment objective, meaning it generally will invest in a sample of securities in the WisdomTree Europe Hedged Equity Index whose risk, return and other characteristics generally resemble, in the view of the investment adviser to the WisdomTree Europe Hedged Equity Fund, the risk, return and other characteristics of the WisdomTree Europe Hedged Equity Index as a whole. Under normal circumstances, at least 95% of the ETF’s total assets (exclusive of collateral held from securities lending) will be invested in component securities of the WisdomTree Europe Hedged Equity Index and investments that have economic characteristics substantially identical to those of such component securities. The WisdomTree Europe Hedged Equity Fund may invest the remainder of its assets in cash and cash equivalents, as well as in shares of other investment companies, forward contracts, futures contracts, options on futures contracts, options, and swaps. To the extent the weights of the stocks in the WisdomTree Europe Hedged Equity Index are concentrated in a particular industry or group of industries, the WisdomTree Europe Hedged Equity Fund will concentrate its investments to approximately the same extent.
To offset the exposure of the WisdomTree Europe Hedged Equity Fund to the euro, the WisdomTree Europe Hedged Equity Fund enters into forward currency contracts or futures contracts. The amount of forward contracts and futures contracts in the WisdomTree Europe Hedged Equity Fund is based on the aggregate exposure of the WisdomTree Europe Hedged Equity Fund to the euro-U.S. dollar exchange rate. This approach may not
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eliminate the exposure of the WisdomTree Europe Hedged Equity Fund to the euro-U.S. dollar exchange rate. The return of the forward currency contracts and currency futures contracts may not offset the actual fluctuations between the euro and the U.S. dollar.
Prior to August 29, 2012, the WisdomTree Europe Hedged Equity Fund tracked a different underlying index than the WisdomTree Europe Hedged Equity Index. The underlying index prior to that date was a broad-based developed international portfolio of dividend-paying stocks that had hedged currency exposure to multiple developed world currencies.
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Material U.S. Federal Income Tax Considerations
The following discussion summarizes material U.S. federal income tax consequences of owning and disposing of the securities that may be relevant to holders of the securities that acquire their securities from us as part of the original issuance of the securities. This discussion applies only to holders that hold their securities as capital assets within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”). Further, this discussion does not address all of the U.S. federal income tax consequences that may be relevant to you in light of your individual circumstances or if you are subject to special rules, such as if you are:
| · | a financial institution, |
| · | a mutual fund, |
| · | a tax-exempt organization, |
| · | a grantor trust, |
| · | certain U.S. expatriates, |
| · | an insurance company, |
| · | a dealer or trader in securities or foreign currencies, |
| · | a person (including traders in securities) using a mark-to-market method of accounting, |
| · | a person who holds the securities as a hedge or as part of a straddle with another position, constructive sale, conversion transaction or other integrated transaction, or |
| · | an entity that is treated as a partnership for U.S. federal income tax purposes. |
The discussion is based upon the Code, law, regulations, rulings and decisions, in each case, as available and in effect as of the date hereof, all of which are subject to change, possibly with retroactive effect. Tax consequences under state, local and foreign laws are not addressed herein. No ruling from the U.S. Internal Revenue Service (the “IRS”) has been sought as to the U.S. federal income tax consequences of the ownership and disposition of the securities, and the following discussion is not binding on the IRS.
You should consult your tax advisor as to the specific tax consequences to you of owning and disposing of the securities, including the application of federal, state, local and foreign income and other tax laws based on your particular facts and circumstances.
Characterization of the Securities
There are no statutory provisions, regulations, published rulings, or judicial decisions addressing the characterization for U.S. federal income tax purposes of securities with terms that are substantially the same as those of your securities. Thus, the characterization of the securities is not certain. Our special tax counsel, Orrick, Herrington & Sutcliffe LLP, has advised that the securities should be treated, for U.S. federal income tax purposes, as prepaid financial contracts, with respect to the Underlyings that are eligible for open transaction treatment. In the absence of an administrative or judicial ruling to the contrary, we and, by acceptance of the securities, you agree to treat the securities for all tax purposes in accordance with such characterization. In light of the fact that we agree to treat the securities as prepaid financial contracts, the balance of this discussion assumes that the securities will be so treated.
You should be aware that the characterization of the securities as described above is not certain, nor is it binding on the IRS or the courts. Thus, it is possible that the IRS would seek to characterize your securities in a manner that results in tax consequences to you that are different from those described below. For example, the IRS might assert that securities with a term of more than one year constitute debt instruments that are “contingent payment debt instruments” that are subject to special tax rules under the applicable Treasury regulations governing the recognition of income over the term of your securities. If the securities were to be treated as contingent payment debt instruments, you would be required to include in income on an economic accrual basis over the term of the securities an amount of interest that is based upon the yield at which we would issue a non-contingent fixed-rate debt instrument with other terms and conditions similar to your securities (the comparable yield). The characterization of the securities as contingent payment debt instruments under these rules is likely to be adverse. However, if the securities had a term of one year or less, the rules for short-term debt obligations would apply rather than the rules for contingent payment debt instruments. Under Treasury regulations, a short-term debt obligation is treated as issued at a discount equal to the difference between all payments on the obligation
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and the obligation’s issue price. A cash method U.S. Holder that does not elect to accrue the discount in income currently should include the payments attributable to interest on the securities as income upon receipt. Under these rules, any contingent payment would be taxable upon receipt by a cash basis taxpayer as ordinary interest income. You should consult your tax advisor regarding the possible tax consequences of characterization of the securities as debt instruments. It is also possible that the IRS would seek to characterize your securities as options, and thus as Code section 1256 contracts in the event that they are listed on a securities exchange. In such case, the securities would be marked-to-market at the end of the year and 40% of any gain or loss would be treated as short-term capital gain or loss, and the remaining 60% of any gain or loss would be treated as long-term capital gain or loss. Alternatively, the IRS might assert that the securities constitute a “constructive ownership transaction,” in which case, under Code section 1260, all or a portion of your gain, if any, from the securities would be recharacterized as ordinary income, and you would be required to pay additional tax calculated by reference to interest on the tax on such recharacterized income. See “Constructive Ownership Transaction Rules” below. We are not responsible for any adverse consequences that you may experience as a result of any alternative characterization of the securities for U.S. federal income tax or other tax purposes.
You should consult your tax advisor as to the tax consequences of such characterization and any possible alternative characterizations of your securities for U.S. federal income tax purposes.
U.S. Holders
For purposes of this discussion, the term “U.S. Holder,” for U.S. federal income tax purposes, means a beneficial owner of securities that is (1) a citizen or resident of the United States, (2) a corporation (or an entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any state thereof or the District of Columbia, (3) an estate, the income of which is subject to U.S. federal income taxation regardless of its source, or (4) a trust, if (a) a court within the United States is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) such trust has in effect a valid election to be treated as a domestic trust for U.S. federal income tax purposes. If a partnership (or an entity treated as a partnership for U.S. federal income tax purposes) holds securities, the U.S. federal income tax treatment of such partnership and a partner in such partnership will generally depend upon the status of the partner and the activities of the partnership. If you are a partnership, or a partner of a partnership, holding securities, you should consult your tax advisor regarding the tax consequences to you from the partnership’s purchase, ownership and disposition of the securities.
In accordance with the agreed-upon tax treatment described above (and subject to the discussion below under “Constructive Ownership Transaction Rules”), if the security provides for the payment of the redemption amount in cash based on the return of the Underlyings, upon receipt of the redemption amount of the security from us, a U.S. Holder will recognize gain or loss equal to the difference between the amount of cash received from us and the U.S. Holder’s tax basis in the security at that time. For securities with a term of more than one year, such gain or loss will be long-term capital gain or loss if the U.S. Holder has held the security for more than one year at maturity. For securities with a term of one year or less, such gain or loss will be short-term capital gain or loss. If the security provides for the payment of the redemption amount in physical shares or units of the Underlyings, the U.S. Holder should not recognize any gain or loss with respect to the security (other than with respect to cash received in lieu of fractional shares or units, as described below). A U.S. Holder should have a tax basis in all physical shares or units received (including for this purpose any fractional shares or units) equal to its tax basis in the security (generally its cost). A U.S. Holder’s holding period for any physical shares or units received should start on the day after the delivery of the physical shares or units. A U.S. Holder should generally recognize short-term capital gain or loss with respect to cash received in lieu of fractional shares or units in an amount equal to the difference between the amount of such cash received and the U.S. Holder’s basis in the fractional shares or units, which should be equal to the U.S. Holder’s basis in all of the physical shares or units (including the fractional shares or units), multiplied by a fraction, the numerator of which is the fractional shares or units and the denominator of which is all of the physical shares or units (including fractional shares or units).
Upon the sale or other taxable disposition of a security, a U.S. Holder generally will recognize gain or loss equal to the difference between the amount realized on the sale or other taxable disposition and the U.S. Holder’s tax basis in the security (generally its cost). For securities with a term of more than one year (and subject to the discussion below under “Constructive Ownership Transaction Rules”), such gain or loss will be long-term capital gain or loss if the U.S. Holder has held the security for more than one year at the time of disposition. For securities with a term of one year or less, such gain or loss will be short-term capital gain or loss.
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Constructive Ownership Transaction Rules
All or a portion of gain arising from certain “constructive ownership transactions” may be recharacterized as ordinary income, and certain interest charges may be imposed with respect to any such recharacterized income. These rules by their terms may apply to any gain derived from the securities if the securities reference an equity interest in a “pass-thru entity” within the meaning of Code section 1260, which includes shares in an exchange traded fund. If the term of the securities is one year or greater and the underlying includes an equity interest in an exchange traded fund, the IRS might assert that the constructive ownership transaction rules of Code section 1260 apply.
If the securities are treated as a constructive ownership transaction, any gain therefrom that otherwise would be long-term capital gain in excess of the “net underlying long-term capital gain” will be treated as ordinary income, and an interest charge will apply as if such income had accrued for tax purposes at a constant yield over the term of the securities. There is a presumption that all of the gain realized that otherwise would have been long-term capital gain is subject to recharacterization as ordinary income and an interest charge, unless the contrary is demonstrated by clear and convincing evidence. Accordingly, any gain a U.S. Holder realizes from the sale, exchange or redemption of its securities in excess of the amount of long-term capital gain that it can establish that it would have realized had it (1) invested in the underlying (rather than the securities) on the issue date of the securities, and (2) sold the underlying on the date of sale, exchange or redemption of the securities, could be recharacterized as ordinary income and subject to an interest charge, as described above.
Code section 1260 also provides that the U.S. Department of the Treasury is to issue regulations that would exclude from the scope of Code section 1260 certain forward contracts that do not convey “substantially all of the economic return” with respect to the applicable reference asset, which in the case of the securities would be all or a portion of the underlying. However, no such regulations have been issued despite the fact that Code section 1260 was enacted in 1999, and there can be no assurance that any regulations that may be issued would apply to securities that are issued before such regulations. Thus, although we believe that the securities should not be considered to convey substantially all the economic return with respect to the underlying, in the absence of regulations, there can be no assurance that the securities would not be so considered or that Code section 1260 would not otherwise apply to the securities.
You should consult with your tax advisor regarding the possible application of the constructive ownership transaction rules to the securities.
Medicare Tax
Certain U.S. Holders that are individuals, estates, and trusts must pay a 3.8% tax (the “Medicare Tax”) on the lesser of the U.S. Holder’s (1) “net investment income” or “undistributed net investment income” in the case of an estate or trust and (2) the excess of modified adjusted gross income over a certain specified threshold for the taxable year. “Net investment income” generally includes income from interest, dividends, and net gains from the disposition of property (such as the securities) unless such income or net gains are derived in the ordinary course of a trade or business (other than a trade or business that is a passive activity with respect to the taxpayer or a trade or business of trading in financial instruments or commodities). Net investment income may be reduced by allowable deductions properly allocable to such gross income or net gain. Any interest earned or deemed earned on the securities and any gain on sale or other taxable disposition of the securities will be subject to the Medicare Tax. If you are an individual, estate, or trust, you should consult with your tax advisor regarding application of the Medicare Tax to your income and gains in respect of your investment in the securities.
Securities Held Through Foreign Entities
Under certain provisions of the “Hiring Incentives to Restore Employment Act,” generally referred to as “FATCA,” and regulations thereunder, a 30% withholding tax is imposed on “withholdable payments” and certain “passthru payments” made to “foreign financial institutions” (as defined in the regulations or an applicable intergovernmental agreement) (and their more than 50% affiliates) unless the payee foreign financial institution agrees, among other things, to disclose the identity of any U.S. individual with an account at the institution (or the institution’s affiliates) and to annually report certain information about such account. The term “withholdable payments” generally includes (1) payments of fixed or determinable annual or periodical gains, profits, and income (“FDAP”), in each case, from sources within the United States, and (2) gross proceeds from the sale of any property of a type which
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can produce interest or dividends from sources within the United States. “Passthru payments” means any withholdable payment and any foreign passthru payment. To avoid becoming subject to the 30% withholding tax on payments to them, we and other foreign financial institutions may be required to report information to the IRS regarding the holders of the securities and, in the case of holders who (i) fail to provide the relevant information, (ii) are foreign financial institutions who have not agreed to comply with these information reporting requirements, or (iii) hold the securities directly or indirectly through such non-compliant foreign financial institutions, we may be required to withhold on a portion of payments under the securities. FATCA also requires withholding agents making withholdable payments to certain foreign entities that do not disclose the name, address, and taxpayer identification number of any substantial U.S. owners (or certify that they do not have any substantial U.S. owners) to withhold tax at a rate of 30%. If payments on the securities are determined to be from sources within the United States, we will treat such payments as withholdable payments for these purposes.
Withholding under FATCA will apply to all withholdable payments and certain passthru payments without regard to whether the beneficial owner of the payment is a U.S. person, or would otherwise be entitled to an exemption from the imposition of withholding tax pursuant to an applicable tax treaty with the United States or pursuant to U.S. domestic law. Unless a foreign financial institution is the beneficial owner of a payment, it will be subject to refund or credit in accordance with the same procedures and limitations applicable to other taxes withheld on FDAP payments provided that the beneficial owner of the payment furnishes such information as the IRS determines is necessary to determine whether such beneficial owner is a U.S.-owned foreign entity and the identity of any substantial U.S. owners of such entity.
Pursuant to the regulations described above and IRS Notice 2015-66, and subject to the exceptions described below, FATCA’s withholding regime generally will apply to (i) withholdable payments (other than gross proceeds of the type described above and certain payments made with respect to a “preexisting obligation,” as defined in the regulations), (ii) payments of gross proceeds of the type described above with respect to a sale or disposition occurring after December 31, 2018, and (iii) foreign passthru payments made after the later of December 31, 2018, or the date that final regulations defining the term “foreign passthru payment” are published. Notwithstanding the foregoing, the provisions of FATCA discussed above generally will not apply to (a) any obligation (other than an instrument that is treated as equity for U.S. tax purposes or that lacks a stated expiration or term) that is outstanding on July 1, 2014 (a “grandfathered obligation”), (b) any obligation that produces withholdable payments solely because the obligation is treated as giving rise to a dividend equivalent pursuant to Code section 871(m) and the regulations thereunder that is outstanding at any point prior to six months after the date on which obligations of its type are first treated as giving rise to dividend equivalents, and (c) any agreement requiring a secured party to make payments with respect to collateral securing one or more grandfathered obligations (even if the collateral is not itself a grandfathered obligation). Thus, if you hold your securities through a foreign financial institution or foreign entity, a portion of any of your payments may be subject to 30% withholding.
Information Reporting Regarding Specified Foreign Financial Assets
The Code and regulations thereunder generally require individual U.S. Holders (“specified individuals”) and “specified domestic entities” with an interest in any “specified foreign financial asset” to file an annual report on IRS Form 8938 with information relating to the asset, including the maximum value thereof, for any taxable year in which the aggregate value of all such assets is greater than $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year. Certain individuals are permitted to have an interest in a higher aggregate value of such assets before being required to file a report. Specified foreign financial assets include, with some limited exceptions, any financial account maintained at a foreign financial institution and any debt or equity interest in a foreign financial institution, including a financial institution organized under the laws of a U.S. possession, and any of the following that are held for investment and not held in an account maintained by a financial institution: (1) any stock or security issued by person other than a U.S. person (including a person organized in a U.S. possession), (2) any financial instrument or contract that has an issuer or counterparty that is other than a U.S. person (including a person organized in a U.S. possession), and (3) any interest in a foreign entity. Additionally, the regulations provide that specified foreign financial assets include certain retirement and pension accounts and non-retirement savings accounts.
Under proposed regulations relating to specified domestic entities that have not yet been adopted as final regulations, “specified domestic entities” are domestic entities that are formed or used for the purposes of holding, directly or indirectly, specified foreign financial assets. Generally, specified domestic entities are certain closely held corporations and partnerships that meet passive income or passive asset tests and, with certain exceptions,
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domestic trusts that have a specified individual as a current beneficiary and exceed the reporting threshold. Pursuant to an IRS Notice, reporting by domestic entities of interests in specified foreign financial assets will not be required before the date specified by final regulations.
Depending on the aggregate value of your investment in specified foreign financial assets, you may be obligated to file an IRS Form 8938 under this provision if you are an individual U.S. Holder. Penalties apply to any failure to file IRS Form 8938. In the event a U.S. Holder (either a specified individual or specified domestic entity) does not file such form, the statute of limitations on the assessment and collection of U.S. federal income taxes of such U.S. Holder for the related tax year may not close before the date which is three years after the date such information is filed. You should consult your tax advisor as to the possible application to you of this information reporting requirement and the related statute of limitations tolling provision.
Non-U.S. Holders Generally
Except as provided under “Securities Held Through Foreign Entities” and “Substitute Dividend and Dividend Equivalent Payments,” payments made with respect to the securities to a holder of the securities that is not a U.S. Holder (a “Non-U.S. Holder”) and that has no connection with the United States other than holding its securities will not be subject to U.S. withholding tax, provided that such Non-U.S. Holder complies with applicable certification requirements. Any gain realized upon the sale or other disposition of the securities by a Non-U.S. Holder generally will not be subject to U.S. federal income tax unless (1) such gain is effectively connected with a U.S. trade or business of such Non-U.S. Holder or (2) in the case of an individual, such individual is present in the United States for 183 days or more in the taxable year of the sale or other disposition and certain other conditions are met. Any effectively connected gains described in clause (1) above realized by a Non-U.S. Holder that is, or is taxable as, a corporation for U.S. federal income tax purposes may also, under certain circumstances, be subject to an additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.
Non-U.S. Holders that are subject to U.S. federal income taxation on a net income basis with respect to their investment in the securities should refer to the discussion above relating to U.S. Holders.
Substitute Dividend and Dividend Equivalent Payments
The Code and regulations thereunder treat a “dividend equivalent” payment as a dividend from sources within the United States. Unless reduced by an applicable tax treaty with the United States, such payments generally will be subject to U.S. withholding tax. A “dividend equivalent” payment is defined under the Code as (i) a substitute dividend payment made pursuant to a securities lending or a sale-repurchase transaction that (directly or indirectly) is contingent upon, or determined by reference to, the payment of a dividend from sources within the United States, (ii) a payment made pursuant to a “specified notional principal contract” (a “specified NPC”) that (directly or indirectly) is contingent upon, or determined by reference to, the payment of a dividend from sources within the United States, and (iii) any other payment determined by the IRS to be substantially similar to a payment described in the preceding clauses (i) and (ii).
Final regulations provide that a dividend equivalent is any payment that references the payment of (i) a dividend from an underlying security pursuant to a securities lending or sale-repurchase transaction, (ii) a dividend from an underlying security pursuant to a specified NPC, (iii) a dividend from an underlying security pursuant to a specified equity-linked instrument (a “specified ELI”), and (iv) any other substantially similar payment. An underlying security is any interest in an entity if a payment with respect to that interest could give rise to a U.S. source dividend pursuant to Treasury regulation section 1.861-3. An NPC is a notional principal contract as defined in Treasury regulation section 1.446-3(c). An equity-linked instrument (“ELI”) is a financial instrument (other than a securities lending or sale-repurchase transaction or an NPC) that references the value of one or more underlying securities, including a futures contract, forward contract, option, debt instrument, or other contractual arrangement. A “section 871(m) transaction” is any securities lending or sale-repurchase transaction, specified NPC, or specified ELI.
For payments made before January 1, 2017, the regulations provide that a specified NPC is any notional principal contract (“NPC”) if (a) in connection with entering into the contract, any long party to the contract transfers the underlying security to any short party to the contract, (b) in connection with the termination of the contract, any short party to the contract transfers the underlying security to any long party to the contract, (c) the underlying
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security is not readily tradable on an established securities market, or (d) in connection with entering into the contract, the underlying security is posted as collateral by any short party to the contract with any long party to the contract. An NPC that is treated as a specified NPC pursuant to the preceding rule will remain a specified NPC on or after January 1, 2017. For any payment made on or after January 1, 2017, with respect to any transaction issued on or after January 1, 2017, (a) a “simple” NPC or “simple” ELI that has a delta of 0.8 or greater with respect to an underlying security when the NPC or ELI is issued is a specified NPC or specified ELI, respectively, and (b) a “complex” NPC or “complex” ELI that meets a substantial equivalence test with respect to an underlying security at the time of issuance is a specified NPC or specified ELI, respectively.
A “simple” NPC or “simple” ELI is an NPC or ELI for which, with respect to each underlying security, (i) all amounts to be paid or received on maturity, exercise, or any other payment determination date are calculated by reference to the appropriate single, fixed number of shares of the underlying security, provided that the number of shares can be ascertained when the contract is issued, and (ii) the contract has a single maturity or exercise date with respect to which all amounts (other than any upfront payment or any periodic payments) are required to be calculated with respect to the underlying security. A contract has a single exercise date even though it may be exercised by the holder at any time on or before the stated expiration of the contract. An NPC or ELI that includes a term that discontinuously increases or decreases the amount paid or received (such as a digital option), or that accelerates or extends the maturity is not a simple ELI or simple NPC. A “complex” NPC or “complex” ELI is any NPC or ELI, respectively, that is not a simple NPC or a simple ELI, respectively. Delta is the ratio of the change in the fair market value of the contract to a small change in the fair market value of the number of shares of the underlying security.
Under temporary regulations, the substantial equivalence test measures the change in value of a complex contract when the price of the underlying security referenced by that contract is hypothetically increased by one standard deviation or decreased by one standard deviation and compares the change in value with the change in value of the shares of the equity that would be held to hedge the complex contract over an increase or decrease in the price of the equity by one standard deviation. If the proportionate difference between (a) the change in value of the complex contract and (b) the change in value of its hedge, is no greater than the proportionate difference between (i) the change in value of a “benchmark simple contract” with respect to the same shares and (ii) the change in value of its hedge, then the complex contract is substantially equivalent to the underlying security and dividend equivalent payments with respect to it are subject to withholding. The “benchmark simple contract” is a closely comparable simple contract that, at the time the complex contract is issued, has a delta of 0.8, references the applicable underlying security referenced by the complex contract, and has the same maturity as the complex contract with respect to the applicable underlying security.
If an NPC or ELI contains more than one reference to a single underlying security, all references to that underlying security are taken into account in determining the delta with respect to that underlying security. If an NPC or ELI references more than one underlying security or other property, the delta with respect to each underlying security must be determined without taking into account any other underlying security or property. The regulations provide an exception for qualified indices that satisfy certain criteria. The regulations provide that a payment includes a dividend equivalent payment whether there is an explicit or implicit reference to a dividend with respect to the underlying security.
For securities issued or deemed issued on or after January 1, 2017, withholding on payments made on or after January 1, 2017 will be based on actual dividends or, if stated in writing on the issue date of the securities, on estimated dividends used in pricing the security. If an adjustment is made for the actual dividends, then the true-up payment (in addition to the estimated dividend) is added to the per-share dividend amount. If a transaction is a section 871(m) transaction, information regarding the amount of each dividend equivalent, the delta of the potential 871(m) transaction, the amount of any tax withheld and deposited, the estimated dividend amount and any other information necessary to apply the regulations will be provided as an attachment to this pricing supplement or on the Credit Suisse website.
In accordance with the applicable effective dates, we will treat any portion of a payment or deemed payment on a section 871(m) transaction (including, if appropriate, the payment of the purchase price) that is substantially similar to a dividend as a dividend equivalent, which will be subject to U.S. withholding tax unless reduced by an applicable tax treaty and a properly executed IRS Form W-8 (or other qualifying documentation) is provided. If withholding applies, we will not be required to pay any additional amounts with respect to amounts withheld. Transactions may be combined and treated as a section 871(m) transaction, creating liability for you, whether or not we withhold on a dividend equivalent. These final and temporary regulations are extremely complex. Non-
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U.S. Holders should consult their tax advisors regarding the U.S. federal income tax consequences to them of these final and temporary regulations and whether payments or deemed payments on the securities constitute dividend equivalent payments.
U.S. Federal Estate Tax Treatment of Non-U.S. Holders
A security may be subject to U.S. federal estate tax if an individual Non-U.S. Holder holds the security at the time of his or her death. The gross estate of a Non-U.S. Holder domiciled outside the United States includes only property situated in the United States. Individual Non-U.S. Holders should consult their tax advisors regarding the U.S. federal estate tax consequences of holding the securities at death.
IRS Notice and Proposed Legislation on Certain Financial Transactions
In Notice 2008-2, the IRS and the Treasury Department stated they are considering issuing new regulations or other guidance on whether holders of an instrument such as the securities should be required to accrue income during the term of the instrument. The IRS and Treasury Department also requested taxpayer comments on (1) the appropriate method for accruing income or expense (e.g., a mark-to-market methodology or a method resembling the noncontingent bond method), (2) whether income and gain on such an instrument should be ordinary or capital, and (3) whether foreign holders should be subject to withholding tax on any deemed income accrual. Additionally, unofficial statements made by IRS officials have indicated that they will soon be addressing the treatment of prepaid forward contracts in proposed regulations.
Accordingly, it is possible that regulations or other guidance may be issued that require holders of the securities to recognize income in respect of the securities prior to receipt of any payments thereunder or sale thereof. Any regulations or other guidance that may be issued could result in income and gain (either at maturity or upon sale) in respect of the securities being treated as ordinary income. It is also possible that a Non-U.S. Holder of the securities could be subject to U.S. withholding tax in respect of the securities under such regulations or other guidance. It is not possible to determine whether such regulations or other guidance will apply to your securities (possibly on a retroactive basis). You are urged to consult your tax advisor regarding Notice 2008-2 and its possible impact on you.
Members of Congress have from time to time proposed legislation relating to financial instruments, including legislation that would require holders to annually mark to market affected financial instruments (potentially including the securities). These or other potential changes in law could adversely affect the tax treatment of the securities and may be applied with retroactive effect. You are urged to consult your tax advisor regarding how any such potential changes in law could affect you.
Backup Withholding and Information Reporting
A holder of the securities (whether a U.S. Holder or a Non-U.S. Holder) may be subject to backup withholding with respect to certain amounts paid to such holder unless it provides a correct taxpayer identification number, complies with certain certification procedures establishing that it is not a U.S. Holder or establishes proof of another applicable exemption, and otherwise complies with applicable requirements of the backup withholding rules. Backup withholding is not an additional tax. You can claim a credit against your U.S. federal income tax liability for amounts withheld under the backup withholding rules, and amounts in excess of your liability are refundable if you provide the required information to the IRS in a timely fashion. A holder of the securities may also be subject to information reporting to the IRS with respect to certain amounts paid to such holder unless it (1) is a Non-U.S. Holder and provides a properly executed IRS Form W-8 (or other qualifying documentation) or (2) otherwise establishes a basis for exemption.
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Supplemental Plan of Distribution (Conflicts of Interest)
Under the terms and subject to the conditions contained in a distribution agreement dated May 7, 2007, as amended, which we refer to as the distribution agreement, we have agreed to sell the securities to CSSU. We may also agree to sell the securities to other agents that are parties to the distribution agreement. We refer to CSSU and other such agents as the “Agents.”
The distribution agreement provides that the Agents are obligated to purchase all of the securities if any are purchased.
The Agents propose to offer the securities at the offering price set forth on the cover page of this pricing supplement and may receive varying discounts and commissions of up to $7.00 per $1,000 principal amount of securities and will forgo fees for sales to fiduciary accounts. The Agents may re-allow some or all of the discount on the principal amount per security on sales of such securities by other brokers or dealers. If all of the securities are not sold at the initial offering price, the Agents may change the public offering price and other selling terms.
An affiliate of Credit Suisse has paid or may pay in the future a fixed amount to broker-dealers in connection with the costs of implementing systems to support these securities.
CSSU is our affiliate. In accordance with FINRA Rule 5121, CSSU may not make sales in this offering to any of its discretionary accounts without the prior written approval of the customer. A portion of the net proceeds from the sale of the securities will be used by CSSU or one of its affiliates in connection with hedging our obligations under the securities.
We expect to deliver the securities against payment for the securities on the Settlement Date indicated herein, which may be a date that is greater than three business days following the Trade Date. Under Rule 15c6-1 of the Securities Exchange Act of 1934, as amended, trades in the secondary market generally are required to settle in three business days, unless the parties to a trade expressly agree otherwise. Accordingly, if the Settlement Date is more than three business days after the Trade Date, purchasers who wish to transact in the securities more than three business days prior to the Settlement Date will be required to specify alternative settlement arrangements to prevent a failed settlement.
For further information, please refer to “Underwriting (Conflicts of Interest)” in the accompanying product supplement.
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