Item 1: Business.
Item 1A:
Item 1A: Risk Factors.
Item 2: Properties.
Item 3: Legal Proceedings.
Item 4: Submission of Matters to a Vote of Security Holders.
Item 1B.
Item 1B. Unresolved Staff Comments.
None
Substitute information provided in accordance with General Instruction J to Form 10-K:
Item 1112(b) of Regulation AB: Significant Obligors of Pool Assets (Financial Information).
The Turquoise securitisation programme relates to the present and future credit card receivables (“Receivables”) originated by HSBC Bank plc (“HSBC”). Receivables are from time to time offered for sale to Turquoise Receivables Trustee Limited (the “Receivables Trustee”) in its capacity as trustee of the Turquoise Receivables Trust (the “Receivables Trust”). Turquoise Funding 1 Limited (“the Loan Note Issuing Entity”) has acquired an interest in the Trust which it financed by issuing limited recourse loan notes to Turquoise Card Backed Securities plc (the “Issuing Entity”). The immediate and ultimate parent undertaking of the Issuing Entity, Loan Note Issuing Entity and Receivables Trustee is Turquoise Holdings Limited (the “Holding Company”).
The Receivables Trust was created pursuant to a Receivables Trust Deed and Servicing Agreement dated May 23, 2006. The Receivables Trust has a beneficial interest in certain present and future credit card receivables securitised by HSBC.
HSBC is the originator, seller, sponsor and servicer under the Receivables Trust Deed and Servicing Agreement dated May 23, 2006.
The primary assets of the Issuing Entity currently consist of the Series 2006-1 loan notes and the Series 2006-2 loan notes, representing an undivided interest in the Loan Note Issuing Entity, whose assets include the investor interest in the Receivables Trust with respect to each of Series 2006-1 and Series 2006-2. Therefore, the Loan Note Issuing Entity may be considered a significant obligor in relation to the Issuing Entity and pursuant to Instruction 3.b. to Item 1112(b) of Regulation AB, the information required by Instruction J to Form 10-K in respect of the Loan Note Issuing Entity has been disclosed in this report on Form 10-K.
The property of the Receivables Trust currently consists of receivables in designated revolving credit card accounts of HSBC and related rights. The pool assets held by the Receivables Trust do not include any significant obligors.
Item 1114(b)(2) of Regulation AB: Credit Enhancement and Other Support, Except for Certain Derivatives Instruments (Financial Information).
Based on the standards set forth in Item 1114(b)(2) of Regulation AB, no information is required in response to this Item.
Item 1115(b) of Regulation AB: Certain Derivatives Instruments (Financial Information).
In order to protect the Issuing Entity against currency exchange rate exposure with respect to Series 2006-2, the Issuing Entity and HSBC USA Inc. (“HSBC USA” or the “Swap Counterparty”) entered into a currency swap transaction.
PART I (continued)
Swap Counterparty
HSBC USA, a Maryland corporation, is a New York state-based bank holding company registered under the Bank Holding Company Act of 1956, as amended. HSBC USA had its origin in Buffalo, New York in 1850 as The Marine Trust Company, which later became Marine Midland Banks, Inc. In 1980, The Hongkong and Shanghai Banking Corporation (now HSBC Holdings plc (“HSBC Holdings”)) acquired 51 percent of the common stock of Marine Midland Banks, Inc. and the remaining 49 percent in 1987. In December 1999, HSBC Holdings acquired Republic New York Corporation and merged it with HSBC USA. The address of HSBC USA’s principal executive office is 452 Fifth Avenue, New York, New York 10018 (telephone 212-525-5000).
HSBC USA is a subsidiary of HSBC North America Inc. (“HSBC North America”), an indirect wholly owned subsidiary of HSBC Holdings. HSBC Holdings, headquartered in London, England, is one of the largest banking and financial services organizations in the world. HSBC Holdings’ ordinary shares are admitted to trading on the London Stock Exchange and are listed on The Stock Exchange of Hong Kong, Euronext Paris and the Bermuda Stock Exchange, and its American depository shares are listed on the New York Stock Exchange.
The audited financial statements of HSBC USA, included in the annual report on Form 10-K for the year ended December 31, 2006, filed by HSBC USA with the Securities and Exchange Commission, are incorporated by reference into this Form 10-K.
Item 1117 of Regulation AB: Legal Proceedings.
HSBC, the Servicer and the Sponsor, is involved, from time to time, in various arbitration and legal proceedings, including litigation, investigations and other proceedings, that arise in the ordinary course of its business. While there can be no assurance about the outcome of these legal proceedings and the consequences are not presently determinable, based on currently available information and after consultation with counsel, HSBC believes that these legal proceedings will not have a material adverse effect on the HSBC’s financial condition or the receivables.
Industry Developments
Changes in card use, payment patterns, amounts of yield on the bank portfolio generally and the rate of defaults by cardholders may result from a variety of social, legal, political and economic factors in the United Kingdom. Social factors include changes in public confidence levels, attitudes toward incurring debt and perception of the use of credit cards. Economic factors include the rate of inflation, the unemployment rate and relative interest rates offered for various types of loans. Political factors include lobbying from interest groups, such as consumers and retailers, and government initiatives in consumer and related affairs. At the present time, there is significant political and regulatory interest in the consumer credit market and in particular, credit cards.
For example, the Treasury Committee (a committee established by House of Commons in the United Kingdom) is involved in an ongoing investigation into credit cards and is placing significant public pressure on credit card issuers to increase transparency of interest rates and charges for customers.
Beginning in October 2003, the Office of Fair Trading (the “OFT”) conducted an investigation into the level of credit card default charges and in April 2006, the OFT issued a statement indicating it considered that credit card default charges were too high and were therefore penalties at common law and “unfair” under the Unfair Terms in Consumer Contracts Regulations and that it would consider taking action against card issuers who charged default charges of more than £12. The OFT’s investigation, with the accompanying media interest, has caused a proportion of customers to seek refunds of default charges applied to their accounts.
Additionally, there is the ongoing OFT examination of whether the levels of interchange paid by retailers (via their acquiring charges) in respect of MasterCard and VISA credit and charge cards are too high. In September 2005 the OFT issued a decision concluding that the agreement of the MasterCard UK Members Forum infringed the Chapter I prohibition of the Competition Act and Article 81(1) of the EC Treaty. The decision held that the members had a collective agreement on price with respect to the level of interchange, and also that this resulted in the unjustified recovery of certain costs. In June 2006, the Competition Appeals Tribunal set aside the OFT’s September 2005 decision.
PART I (continued)
MasterCard meanwhile introduced new arrangements for the setting the MasterCard interchange fee by a management decision of the parent company. The OFT announced that it still had concerns about the new arrangements, and commenced a new investigation in February 2006. In October 2005, the OFT similarly opened an investigation into VISA’s method of setting credit card interchange as an infringement of competition law. Both cases are on-going in 2007.
The European Commission (the “EC”) issued a decision in 2002 concluding that the level of cross-border interchange within the European Union in respect of VISA credit cards was too high and required VISA to undertake a phased reduction in the level of interchange. The EC will be free to re-examine this issue after 31 December 2007. Additionally, the EC is at present investigating MasterCard’s rules and agreements with respect to interchange, issuing a supplementary statement of objections in June 2006.
Plausibly prompted by these cases, the EC recently conducted a sector inquiry into the payment cards industry across all the Member States. The final report issued in January 2007, concluded that while the EC competition authority would not recommend the abolition of interchange, it had serious concerns about the level charged and the methodology used.
A forced reduction in the rate of interchange as a result of any of these findings could have a significant adverse effect on the future yield on the credit card portfolio. In addition, there is the potential risk of fines to be paid to the OFT or EC, and claims for damages from third parties.
PART II
The following Items have been omitted in accordance with General Instruction J to Form 10-K:
Item 5:
Item 5: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuing Entity Purchases of Equity Securities.
Item 6:
Item 6: Selected Financial Data.
Item 7:
Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A:
Item 7A: Quantitative and Qualitative Disclosures about Market Risk.
Item 8:
Item 8: Financial Statements and Supplementary Data.
Item 9:
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A:
Item 9A: Controls and Procedures.
Item 9B:
Item 9B: Other Information.
None.
PART III
The following Item has been omitted in accordance with General Instruction J to Form 10-K:
Item 14: Principal Accountant Fees and Services.
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The following sets out information concerning the directors of Turquoise Card Backed Securities plc, Turquoise Funding 1 Limited and Turquoise Receivables Trustee Limited as of December 31, 2006.
Turquoise Card Backed Securities plc
Mark Filer (age 39) and Ruth Samson (age 34) are British and a both Company Directors. There are no potential conflicts of interest between the duties of the directors listed above to the Issuer and their private interests or other duties.
Wilmington Trust SP Services (London) Limited will provide the Issuer with general secretarial, registrar and company administration services under the terms of an agreement refered to as the ‘‘Corporate Services Agreement’’.
Turquoise Funding 1 Limited
Shane Michael Hollywood (age 38) and Richard Charles Gerwat (age 41) are British and are both Advocates of the Royal Court of Jersey. Shane Michael Hollywood and Richard Charles Gerwat are also directors of Bedell Trustees Limited, Bedell Secretaries Limited and Bedell Trust Company Limited, and are also partners in the Bedell Group Partnership, (the ultimate owner of the aforementioned companies) as well as being partners in the law firm Bedell Cristin.
PART III (continued)
Turquoise Receivables Trustee Limited
Shane Michael Hollywood (age 38) and Richard Charles Gerwat (age 41) are British and are both Advocates of the Royal Court of Jersey. Shane Michael Hollywood and Richard Charles Gerwat are also directors of Bedell Trustees Limited, Bedell Secretaries Limited and Bedell Trust Company Limited, and are also partners in the Bedell Group Partnership, (the ultimate owner of the aforementioned companies) as well as being partners in the law firm Bedell Cristin.
The registrants’ only activities relate to the programme for the purposes of which they were formed and they operate solely within the framework established by the programme documents and within the legal and regulatory frameworks to which they are subject and their respective constitutions. As “special purpose vehicles” with a small amount of active management and a highly limited scope of operations, the registrants have not adopted a particular “code of ethics”, which is typical for vehicles of this nature.
Item 11.
Item 11. Executive Compensation:
None
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters:
Turquoise Card Backed Securities plc
Turquoise Funding 1 Limited
Turquoise Receivables Trustee Limited
PART III (continued)
Item 13:
Item 13: Certain Relationships and Related Transactions.
None
Substitute information provided in accordance with General Instruction J to Form 10-K:
Item 1119 of Regulation AB: Affiliations and Certain Relationships and Related Transactions.
HSBC Bank plc serves as the sponsor, servicer and the originator of the receivables. HSBC USA Inc., an affiliate of HSBC Bank plc, serves as swap counterparty under a currency swap transaction with the Issuing Entity.
Item 1122 of Regulation AB: Compliance with Applicable Servicing Criteria.
Please see Exhibit 33.1 and Exhibit 33.2.
Item 1123 of Regulation AB: Servicer Compliance Statement.
Please see Exhibit 35.1 and Exhibit 35.2.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules.
(a)(1) Not Applicable.
(a)(2) Not Applicable.
(a)(3) Not Applicable.
(b) Exhibits
PART IV (continued)
PART IV (continued)
(c) Not Applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorised.
Turquoise Card Backed Securities plc, as Registrant
By:
HSBC Bank plc, in its capacity as Servicer
Signature:
/s/ Roger K McGregor
Name:
Roger K. McGregor
Title:
Chief Financial Officer, HSBC Bank plc
Dated:
30 March 2007
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorised.
Turquoise Funding 1 Limited, as Registrant
By:
HSBC Bank plc, in its capacity as Servicer
Signature: Name:
/s/ Roger K McGregor
Roger K. McGregor
Title:
Chief Financial Officer, HSBC Bank plc
Dated:
30 March 2007
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorised.
Turquoise Receivables Trustee Limited, as Registrant
By:
HSBC Bank plc, in its capacity as Servicer
Signature:
/s/ Roger K McGregor
Name:
Roger K. McGregor
Title:
Chief Financial Officer, HSBC Bank plc
Dated:
30 March 2007