The notes are being issued by Credit Suisse AG (“Credit Suisse”), acting through its London Branch. There are important differences between the notes and a conventional debt security, including different investment risks and certain additional costs. See “Risk Factors” beginning on page TS-6 of this term sheet and beginning on page PS-6 of product supplement STEPS-1.
The initial estimated value of the notes as of the pricing date is $9.75
per unit, which is less than the public offering price listed below.
See “Summary” on the following page, “Risk Factors” on page TS-6 of this term sheet and “Structuring the Notes” on page TS-9 of this term sheet for additional information. The actual value of your notes at any time will reflect many factors and cannot be predicted with accuracy.
_________________________
None of the Securities and Exchange Commission (the “SEC”), any state securities commission, or any other regulatory body has approved or disapproved of these securities or determined if this Note Prospectus (as defined below) is truthful or complete. Any representation to the contrary is a criminal offense.
_________________________
|
|
|
Per Unit
|
|
|
Total
|
|
|
Public offering price
(1)
|
|
$
|
10.000
|
|
|
$
|
7,611,570.00
|
|
|
Underwriting discount
|
|
$
|
0.175
|
|
|
$
|
133,202.48
|
|
|
Proceeds, before expenses, to Credit Suisse
|
|
$
|
9.825
|
|
|
$
|
7,478,367.52
|
|
|
|
(1)
|
Plus accrued interest from the scheduled settlement date, if settlement occurs after that date.
|
The notes:
|
Are Not FDIC Insured
|
Are Not Bank Guaranteed
|
May Lose Value
|
Merrill Lynch & Co.
October 10, 2013
STEP
Income
S
ecurities
®
Linked to the Common Stock of salesforce.com, inc., due October 27, 2014
Summary
The
STEP
Income
S
ecurities
®
Linked to the Common Stock of salesforce.com, inc., due October 27, 2014 (the “notes”) are our senior unsecured debt securities.
The notes are not guaranteed or insured by the Federal Deposit Insurance Corporation or any other governmental agency of the United States, Switzerland or any other jurisdiction and are not secured by collateral.
The notes will rank equally with all of our other unsecured and unsubordinated debt. Any payments due on the notes, including any repayment of principal, will be subject to the credit risk of Credit Suisse.
The notes provide quarterly interest payments. Additionally, if the Ending Value of the Underlying Stock, which is the common stock
of salesforce.com, inc., is at or above the Step Level, the notes will also provide a payment of $0.855 per unit at maturity. If the Ending Value is less than the Step Level, the Redemption Amount will not be greater than your principal amount. If the Ending Value is less than the Starting Value, the Redemption Amount will be less than the principal amount of your notes, and may be as low as zero. Payments on the notes, including the amount you receive at maturity, will be calculated based on the $10 principal amount per unit and will depend on our credit risk and the performance of the Underlying Stock. See “Terms of the Notes” below.
The economic terms of the notes (including the Step Payment) are based on the rate we are currently paying to borrow funds through the issuance of market-linked notes (our “internal funding rate”) and the economic terms of certain related hedging arrangements. Our internal funding rate for market-linked notes is typically lower than a rate reflecting the yield on our conventional debt securities of similar maturity in the secondary market (our “secondary market credit rate”). This difference in borrowing rate, as well as the underwriting discount and the hedging related charge described below, effectively reduced the economic terms of the notes to you and the initial estimated value of the notes on the pricing date. These costs will be effectively borne by you as an investor in the notes, and will be retained by us and MLPF&S or any of our respective affiliates in connection with our structuring and offering of the notes. Due to these factors, the public offering price you pay to purchase the notes is greater than the initial estimated value of the notes.
On the cover page of this term sheet, we have provided the initial estimated value for the notes. This estimated value was determined based on our valuation of the theoretical components of the notes in accordance with our pricing models. These include a theoretical bond component valued using our internal funding rate, and theoretical individual option components valued using mid-market pricing. You will not have any interest in, or rights to, the theoretical components we used to determine the estimated value of the notes. For more information about the initial estimated value and the structuring of the notes, see “Structuring the Notes” on page TS-9.
|
Terms of the Notes
|
Redemption Amount Determination
|
|
Issuer:
|
Credit Suisse AG, acting through its London Branch (“Credit Suisse”).
|
In addition to interest payable, on the maturity date, you will receive a cash payment per unit determined as follows:
|
|
Principal Amount:
|
$10 per unit
|
|
Term:
|
Approximately one year and one week
|
|
Underlying Stock:
|
Common stock of salesforce.com, inc. (the “Underlying Company”) (NYSE symbol: CRM)
|
|
Starting Value:
|
51.22 (the Volume Weighted Average Price on the pricing date).
|
|
Volume Weighted Average Price:
|
The volume weighted average price (rounded to two decimal places) shown on page “AQR” on Bloomberg L.P. for trading in shares of the Underlying Stock taking place from approximately 9:30 a.m. to 4:02 p.m. on all U.S. exchanges.
|
|
Ending Value:
|
The Closing Market Price of the Underlying Stock on the valuation date, multiplied by the Price Multiplier. The valuation date is subject to postponement in the event of Market Disruption Events, as described beginning on page PS-19 of product supplement STEPS-1.
|
|
Valuation Date:
|
October 20, 2014
|
|
Interest Rate:
|
9% per year
|
|
Interest Payment Dates:
|
January 27, 2014, April 27, 2014, July 27, 2014 and the maturity date
|
|
Step Payment:
|
$0.855 per unit, which represents a return of 8.55% of the principal amount.
|
|
Step Level:
|
55.83 (109% of the Starting Value, rounded to two decimal places).
|
|
Threshold Value:
|
51.22 (100% of the Starting Value)
|
|
Fees and Charges:
|
The underwriting discount of $0.175 per unit listed on the cover page and the hedging related charge of $0.075 per unit described in “Structuring the Notes” on page TS-9.
|
|
Price Multiplier:
|
1, subject to adjustment for certain corporate events relating to the Underlying Stock described beginning on page PS-21 of product supplement STEPS-1.
|
|
Joint Calculation Agents:
|
Credit Suisse International and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), acting jointly.
|
|
STEP
Income
S
ecurities
®
|
TS-2
|
STEP
Income
S
ecurities
®
Linked to the Common Stock of salesforce.com, inc., due October 27, 2014
The terms and risks of the notes are contained in this term sheet and in the following:
|
|
§
|
Product supplement STEPS-1 dated October 1, 2013:
|
|
|
§
|
Prospectus supplement and prospectus dated March 23, 2012:
|
These documents (together, the “Note Prospectus”) have been filed as part of a registration statement with the SEC, which may, without cost, be accessed on the SEC website as indicated above or obtained from MLPF&S by calling 1-866-500-5408.
Before you invest, you should read the Note Prospectus, including this term sheet, for information about us and this offering. Any prior or contemporaneous oral statements and any other written materials you may have received are superseded by the Note Prospectus. Capitalized terms used but not defined in this term sheet have the meanings set forth in product supplement STEPS-1. Unless otherwise indicated or unless the context requires otherwise, all references in this document to “we,” “us,” “our,” or similar references are to Credit Suisse.
Investor Considerations
|
You may wish to consider an investment in the notes if:
|
|
The notes may not be an appropriate investment for you if:
|
|
|
|
|
|
§
You anticipate that the Ending Value will be greater than or equal to the Step Level.
§
You seek interest payments on your investment.
§
You accept that the maximum return on the notes is limited to the sum of the quarterly interest payments and the Step Payment, if any.
§
You accept that your investment will result in a loss, which could be significant, if the Ending Value is below the Starting Value.
§
You are willing to forgo dividends or other benefits of owning shares of the Underlying Stock.
§
You are willing to accept a limited market for sales prior to maturity, and understand that the market prices for the notes, if any, will be affected by various factors, including our actual and perceived creditworthiness, our internal funding rate and fees and charges on the notes.
§
You are willing to assume our credit risk, as issuer of the notes, for all payments under the notes, including the Redemption Amount.
|
|
§
You anticipate that the Ending Value will be less than the Step Level.
§
You anticipate that the price of the Underlying Stock will increase substantially and do not want a payment at maturity that is limited to the Step Payment.
§
You seek principal protection or preservation of capital.
§
In addition to interest payments, you seek an additional guaranteed return above the principal amount.
§
You seek to receive dividends or other distributions paid on the Underlying Stock.
§
You seek an investment for which there will be a liquid secondary market.
§
You are unwilling or are unable to take market risk on the notes or to take our credit risk as issuer of the notes.
|
We urge you to consult your investment, legal, tax, accounting, and other advisors before you invest in the notes.
|
STEP
Income
S
ecurities
®
|
TS-3
|
STEP
Income
S
ecurities
®
Linked to the Common Stock of salesforce.com, inc., due October 27, 2014
Hypothetical Payments
The following examples are for purposes of illustration only. They are based on
hypothetical
values and show
hypothetical
payments on the notes.
The actual amount you receive and the resulting return will depend on the actual Starting Value, Threshold Value, Ending Value, Step Level, and term of your investment.
The following examples do not take into account any tax consequences from investing in the notes. These examples are based on:
|
1)
|
a Starting Value of 100;
|
|
2)
|
a Threshold Value of 100;
|
|
4)
|
the Step Payment of $0.855 per unit;
|
|
5)
|
the term of the notes from October 18, 2013 to October 27, 2014; and
|
|
6)
|
the interest rate of 9% per year.
|
The hypothetical Starting Value of 100 used in these examples has been chosen for illustrative purposes only. The actual Starting Value is 51.22, which was the Volume Weighted Average Price of the Underlying Stock on the pricing date. For recent actual prices of the Underlying Stock, see “The Underlying Stock” section below. In addition, all payments on the notes are subject to issuer credit risk.
Example 1
The Ending Value is 115 (115% of the Starting Value)
The Ending Value is greater than the Step Level. Consequently, in addition to the quarterly interest payments, you will receive on the maturity date the principal amount of your notes plus the Step Payment of $0.855 per unit. The Redemption Amount per unit on the maturity date will therefore be equal to $10.855 per unit ($10.000 plus the Step Payment of $0.855 per unit).
Example 2
The Ending Value is 105 (105% of the Starting Value)
The Ending Value is greater than the Starting Value but below the Step Level. Consequently, you will receive the quarterly interest payments, but you will not receive the Step Payment on the maturity date. The Redemption Amount per unit on the maturity date will therefore be equal to $10.000.
Example 3
The Ending Value is 70 (70% of the Starting Value)
The Ending Value is less than the Starting Value and the Threshold Value. Consequently, you will receive the quarterly interest payments, but you will not receive the Step Payment on the maturity date, and you will participate on a 1-for-1 basis in the decrease in the price of the Underlying Stock. The Redemption Amount per unit will equal:
On the maturity date, you will receive the Redemption Amount per unit of $7.000.
|
STEP
Income
S
ecurities
®
|
TS-4
|
STEP
Income
S
ecurities
®
Linked to the Common Stock of salesforce.com, inc., due October 27, 2014
Summary of the Hypothetical Examples
|
|
Example 1
|
Example 2
|
Example 3
|
|
|
The Ending Value is greater than or equal to the Step Level
|
The Ending Value is less than the Step Level but greater than or equal to the Starting Value
|
The Ending Value is less than the Starting Value and the Threshold Value
|
|
Starting Value
|
100.00
|
100.00
|
100.00
|
|
Ending Value
|
115.00
|
105.00
|
70.00
|
|
Step Level
|
109.00
|
109.00
|
109.00
|
|
Threshold Value
|
100.00
|
100.00
|
100.00
|
|
Interest Rate (per year)
|
9.00%
|
9.00%
|
9.00%
|
|
Step Payment
|
$0.855
|
$0.000
|
$0.000
|
|
Redemption Amount per Unit
|
$10.855
|
$10.000
|
$7.000
|
|
Total Return of
the Underlying Stock
(1)
|
15.00%
|
5.00%
|
-30.00%
|
|
Total Return on the Notes
(2)
|
17.775%
|
9.225%
|
-20.775%
|
|
|
(1)
|
The total return of the Underlying Stock assumes:
|
|
|
(a)
|
the percentage change in the price of the Underlying Stock from the Starting Value to the Ending Value;
|
|
|
(b)
|
a constant dividend yield of 0.00% per year; and
|
|
|
(c)
|
no transaction fees or expenses.
|
|
|
(2)
|
The total return on the notes includes interest paid on the notes from October 18, 2013 to October 27, 2014.
|
|
STEP
Income
S
ecurities
®
|
TS-5
|
STEP
Income
S
ecurities
®
Linked to the Common Stock of salesforce.com, inc., due October 27, 2014
Risk Factors
There are important differences between the notes and a conventional debt security. An investment in the notes involves significant risks, including those listed below. You should carefully review the more detailed explanation of risks relating to the notes in the “Risk Factors” sections beginning on page PS-6 of product supplement STEPS-1 identified above. We also urge you to consult your investment, legal, tax, accounting, and other advisors before you invest in the notes.
|
|
§
|
Depending on the performance of the Underlying Stock as measured shortly before the maturity date, your investment may result in a loss; there is no guaranteed return of principal.
|
|
|
§
|
Your return on the notes may be less than the yield you could earn by owning a conventional fixed or floating rate debt security of comparable maturity.
|
|
|
§
|
Payments on the notes are subject to our credit risk, and actual or perceived changes in our creditworthiness are expected to affect the value of the notes. If we become insolvent or are unable to pay our obligations, you may lose your entire investment.
|
|
|
§
|
You will not receive a Step Payment at maturity unless the Ending Value is greater than or equal to the Step Level.
|
|
|
§
|
Your investment return, if any, is limited to the return represented by the periodic interest payments over the term of the notes and the Step Payment, if any, and may be less than a comparable investment directly in the Underlying Stock.
|
|
|
§
|
The initial estimated value of the notes is an estimate only, determined as of a particular point in time by reference to our proprietary pricing models. These pricing models consider certain factors, such as our internal funding rate on the pricing date, interest rates, volatility and time to maturity of the notes, and they rely in part on certain assumptions about future events, which may prove to be incorrect. Because our 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 us (even among issuers with similar creditworthiness), our estimated value may not be comparable to estimated values of similar notes of other issuers.
|
|
|
§
|
Our internal funding rate for market-linked notes is typically lower than our secondary market credit rates, as further described in “Structuring the Notes” on page TS-9. Because we use our internal funding rate to determine the value of the theoretical bond component, the initial estimated value of the notes may be greater than if we had used our secondary market credit rates in valuing the notes.
|
|
|
§
|
The public offering price you pay for the notes exceeds the initial estimated value. This is due to, among other transaction costs, the inclusion in the public offering price of the underwriting discount and the hedging related charge, as further described in “Structuring the Notes” on page TS-9.
|
|
|
§
|
Assuming no change in market conditions or other relevant factors after the pricing date, the market value of your notes may be lower than the price you paid for them and lower than the initial estimated value. This is due to, among other things, the inclusion in the public offering price of the underwriting discount and the hedging related charge and the internal funding rate we used in pricing the notes, as further described in "Structuring the Notes" on page TS-9. These factors, together with customary bid ask spreads, other transaction costs and various credit, market and economic factors over the term of the notes, including changes in the price of the Underlying Stock, are expected to reduce the price at which you may be able to sell the notes in any secondary market and will affect the value of the notes in complex and unpredictable ways.
|
|
|
§
|
A trading market is not expected to develop for the notes. Neither we nor MLPF&S is obligated to make a market for, or to repurchase, the notes. The initial estimated value does not represent a minimum or maximum price at which we, MLPF&S or any of our affiliates would be willing to purchase your notes in any secondary market (if any exists) at any time. MLPF&S has advised us that any repurchases by them or their affiliates will be made at prices determined by reference to their pricing models and at their discretion, and these prices will include MLPF&S’s trading commissions and mark-ups. If you sell your notes to a dealer other than MLPF&S, the dealer may impose its own discount or commission. MLPF&S has also advised us that, at its discretion and for your benefit, assuming no changes in market conditions from the pricing date, any purchase price paid by MLPF&S in the secondary market may exceed the initial estimated value of the notes for a short initial period after the issuance of the notes. That higher price reflects costs that were included in the public offering price of the notes, and that higher price may also be initially used for account statements or otherwise. There is no assurance that any party will be willing to purchase your notes at any price in any secondary market.
|
|
|
§
|
Our business, hedging and trading activities, and those of MLPF&S and our respective affiliates (including trades in shares of the Underlying Stock), and any hedging and trading activities we, MLPF&S or our respective affiliates engage in for our clients’ accounts, may affect the market value and return of the notes and may create conflicts of interest with you.
|
|
|
§
|
The Underlying Company will have no obligations relating to the notes, and neither we nor MLPF&S will perform any due diligence procedures with respect to the Underlying Company in connection with this offering.
|
|
|
§
|
You will have no rights of a holder of the Underlying Stock, and you will not be entitled to receive shares of the Underlying Stock or dividends or other distributions by the Underlying Company.
|
|
|
§
|
While we, MLPF&S, or our respective affiliates may from time to time own securities of the Underlying Company, we do not control the Underlying Company, and are not responsible for any disclosure made by the Underlying Company.
|
|
STEP
Income
S
ecurities
®
|
TS-6
|
STEP
Income
S
ecurities
®
Linked to the Common Stock of salesforce.com, inc., due October 27, 2014
|
|
§
|
The Redemption Amount will not be adjusted for all corporate events that could affect the Underlying Stock. See “Description of the Notes—Anti-Dilution Adjustments” beginning on page PS-21 of product supplement STEPS-1.
|
|
|
§
|
There may be potential conflicts of interest involving the calculation agent. We have the right to appoint and remove the calculation agent.
|
|
|
§
|
The U.S. federal income tax consequences of the notes are uncertain, and may be adverse to a holder of the notes. See “Material U.S. Federal Income Tax Consequences” below and “Material U.S. Federal Income Tax Consequences” beginning on page PS-30 of product supplement STEPS-1.
|
|
STEP
Income
S
ecurities
®
|
TS-7
|
STEP
Income
S
ecurities
®
Linked to the Common Stock of salesforce.com, inc., due October 27, 2014
The Underlying Stock
We have derived the following information from publicly available documents. We have not independently verified the accuracy or completeness of the following information. salesforce.com, inc. provides software on demand. The company supplies a customer relationship management service to businesses worldwide providing a technology platform for customers and developers to build and run business applications. Clients use salesforce.com to manage their customer, sales and operational data.
Because the Underlying Stock is registered under the Securities Exchange Act of 1934, the Underlying Company is required to file periodically certain financial and other information specified by the SEC. Information provided to or filed with the SEC by the Underlying Company can be located at the Public Reference Section of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549 or through the SEC’s web site at http://www.sec.gov by reference to SEC CIK number 1108524.
This term sheet relates only to the notes and does not relate to the Underlying Stock or to any other securities of the Underlying Company. Neither we nor any of our affiliates have participated or will participate in the preparation of the Underlying Company’s publicly available documents. Neither we nor any of our affiliates have made any due diligence inquiry with respect to the Underlying Company in connection with the offering of the notes. Furthermore, there can be no assurance that all events occurring prior to the date of this term sheet, including events that would affect the accuracy or completeness of publicly available documents regarding the Underlying Company that would affect the trading price of the Underlying Stock, have been or will be publicly disclosed. Subsequent disclosure of any events or the disclosure of or failure to disclose material future events concerning the Underlying Company could affect the value of the Underlying Stock and therefore could affect your return on the notes. The selection of the Underlying Stock is not a recommendation to buy or sell the Underlying Stock.
The Underlying Stock trades on the New York Stock Exchange under the symbol “CRM.”
Historical Data
The following table shows the quarterly high and low Closing Market Prices of the shares of the Underlying Stock on its primary exchange from the first quarter of 2008 through the pricing date. We obtained this historical data from Bloomberg L.P. We have not independently verified the accuracy or completeness of the information obtained from Bloomberg L.P. These historical trading prices may have been adjusted to reflect certain corporate actions such as stock splits and reverse stock splits.
|
|
High ($)
|
Low ($)
|
|
2008 First Quarter
|
15.42
|
11.97
|
|
Second Quarter
|
18.61
|
14.84
|
|
Third Quarter
|
17.69
|
11.19
|
|
Fourth Quarter
|
11.60
|
5.49
|
|
|
|
|
|
2009 First Quarter
|
9.26
|
6.44
|
|
Second Quarter
|
11.23
|
8.17
|
|
Third Quarter
|
14.64
|
8.89
|
|
Fourth Quarter
|
18.66
|
13.63
|
|
|
|
|
|
2010 First Quarter
|
19.38
|
15.52
|
|
Second Quarter
|
24.28
|
18.89
|
|
Third Quarter
|
30.79
|
21.77
|
|
Fourth Quarter
|
37.65
|
24.98
|
|
|
|
|
|
2011 First Quarter
|
36.62
|
30.00
|
|
Second Quarter
|
38.39
|
32.24
|
|
Third Quarter
|
39.83
|
27.72
|
|
Fourth Quarter
|
34.79
|
24.51
|
|
|
|
|
|
2012 First Quarter
|
39.34
|
24.37
|
|
Second Quarter
|
39.89
|
31.83
|
|
Third Quarter
|
39.86
|
30.34
|
|
Fourth Quarter
|
42.73
|
34.92
|
|
|
|
|
|
2013 First Quarter
|
46.59
|
40.84
|
|
Second Quarter
|
47.01
|
36.75
|
|
Third Quarter
|
53.38
|
37.80
|
|
Fourth Quarter (through pricing date)
|
53.15
|
49.91
|
This historical data on the Underlying Stock is not necessarily indicative of the future performance of the Underlying Stock or what the value of the notes may be. Any historical upward or downward trend in the price per share of the Underlying Stock during any period set forth above is not an indication that the price per share of the Underlying Stock is more or less likely to increase or decrease at any time over the term of the notes.
Before investing in the notes, you should consult publicly available sources for the prices and trading pattern of the Underlying Stock.
|
STEP
Income
S
ecurities
®
|
TS-8
|
STEP
Income
S
ecurities
®
Linked to the Common Stock of salesforce.com, inc., due October 27, 2014
Supplement to the Plan of Distribution
Under our distribution agreement with MLPF&S, MLPF&S will purchase the notes from us as principal at the public offering price indicated on the cover of this term sheet, less the indicated underwriting discount.
We will deliver the notes against payment therefor in New York, New York on a date that is greater than three business days following the pricing date. Under Rule 15c6-1 of the Securities Exchange Act of 1934, trades in the secondary market generally are required to settle in three business days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade the notes more than three business days prior to the original issue date will be required to specify alternative settlement arrangements to prevent a failed settlement.
The notes will not be listed on any securities exchange. In the original offering of the notes, the notes will be sold in minimum investment amounts of 100 units. If you place an order to purchase the notes, you are consenting to MLPF&S acting as a principal in effecting the transaction for your account.
MLPF&S has advised us as follows: They or their affiliates may repurchase and resell the notes, with repurchases and resales being made at prices related to then-prevailing market prices or at negotiated prices determined by reference to their pricing models and at their discretion, and these prices will include MLPF&S’s trading commissions and mark-ups. MLPF&S may act as principal or agent in these market-making transactions; however, it is not obligated to engage in any such transactions. MLPF&S has informed us that at MLPF&S’s discretion and for your benefit, assuming no changes in market conditions from the pricing date, any purchase price paid by MLPF&S in the secondary market may exceed the initial estimated value of the notes for a short initial period after the issuance of the notes. However, none of us, MLPF&S, or any of our respective affiliates is obligated to purchase your notes at any price.
MLPF&S has informed us that, as of the date of this term sheet, it expects that if you hold your notes in a MLPF&S account, the value of the notes shown on your account statement will be based on MLPF&S’s estimate of the value of the notes if MLPF&S or another of its affiliates were to make a market in the notes, which it is not obligated to do; and that estimate will be based upon the price that MLPF&S may pay for the notes in light of then-prevailing market conditions, our creditworthiness and transaction costs. Any such price may be higher than or lower than the initial estimated value of the notes.
The distribution of the Note Prospectus in connection with these offers or sales will be solely for the purpose of providing investors with the description of the terms of the notes that was made available to investors in connection with their initial offering. Secondary market investors should not, and will not be authorized to, rely on the Note Prospectus for information regarding Credit Suisse or for any purpose other than that described in the immediately preceding sentence.
The notes are our debt securities, the return on which is linked to the performance of the Underlying Stock. As is the case for all of our debt securities, including our market-linked notes, the economic terms of the notes reflect our actual or perceived creditworthiness at the time of pricing. In addition, because market-linked notes result in increased operational, funding and liability management costs to us, the internal funding rate we use in pricing market-linked notes is typically lower than a rate reflecting the yield on our conventional debt securities of similar maturity in the secondary market. Because we use our internal funding rate to determine the value of the theoretical bond component, the initial estimated value of the notes may be higher than if the initial estimated value was based our secondary market credit rates.
Payments on the notes, including the amount you receive at maturity, will be calculated based on the $10 principal amount per unit and will depend on the performance of the Underlying Stock. We are also required to make the interest payments on the notes. In order to meet these payment obligations, at the time we issue the notes, we may choose to enter into certain hedging arrangements (which may include call options, put options or other derivatives) with MLPF&S or one of its affiliates. The terms of these hedging arrangements are determined by seeking bids from market participants, including MLPF&S and its affiliates, and take into account a number of factors, including our creditworthiness, interest rate movements, the volatility of the Underlying Stock, the tenor of the notes and the tenor of the hedging arrangements. The economic terms of the notes and their initial estimated value depend in part on the terms of these hedging arrangements.
MLPF&S has advised us that the hedging arrangements will include a hedging related charge of approximately $0.075 per unit, reflecting an estimated profit to be credited to MLPF&S from these transactions. Since hedging entails risk and may be influenced by unpredictable market forces, additional profits and losses from these hedging arrangements may be realized by MLPF&S or any third party hedge providers.
For further information, see "Risk Factors—General Risks Relating to the Notes” beginning on page PS-6 and “Supplemental Use of Proceeds and Hedging” on page PS-16 of product supplement STEPS-1.
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Credit Suisse AG
Credit Suisse AG, London Branch (“CSLB”), was registered in England and Wales on April 22, 1993. It is, among other things, a vehicle for various funding activities of Credit Suisse AG. CSLB exists as part of Credit Suisse AG and is not a separate legal entity, although it has independent status for certain tax and regulatory purposes. CSLB is authorized and regulated by the Financial Market Supervisory Authority in Switzerland, is authorized by the Prudential Regulation Authority in the U.K., and is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority in the U.K. CSLB’s address is One Cabot Square, London EC14 4QJ, and its telephone number is +44 20 7888 8888. For additional information, see “Credit Suisse” in the accompanying prospectus.
Credit Suisse may at any time substitute another of its branches for the branch through which it acts under the notes for all purposes under the notes. The notes will remain obligations of Credit Suisse, notwithstanding any such substitution.
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Material U.S. Federal Income Tax Consequences
The following discussion is a brief summary of material U.S. federal income tax consequences relating to an investment in the notes. The following summary is not complete and is both qualified and supplemented by the discussion under the section entitled “Material U.S. Federal Income Tax Consequences” beginning on page PS-30 of product supplement STEPS-1, which you should carefully review prior to investing in the notes.
There are no statutory provisions, regulations, published rulings, or judicial decisions addressing the characterization for U.S. federal income tax purposes of the notes or securities with terms that are substantially the same as those of the notes. Thus, the characterization of the notes is not certain. In the absence of an administrative or judicial ruling to the contrary and pursuant to the terms of the notes, you agree with us to treat the notes, for U.S. federal income tax purposes, as prepaid financial contracts, with respect to the Market Measure, that are eligible for open transaction treatment in part. The balance of this discussion assumes that the notes will be treated as prepaid financial contracts. You should be aware that such characterization of the notes is not certain, nor is it binding on the U.S. Internal Revenue Service (the “IRS”) or the courts. Thus, it is possible that the IRS would seek to characterize your notes in a manner that results in tax consequences to you that are different from those described below or in the product supplement. We are not responsible for any adverse consequences that you may experience as a result of any alternative characterization of the notes 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 the notes for U.S. federal income tax purposes. See “Material U.S. Federal Income Tax Consequences—Alternative Characterizations of the Notes” in the product supplement.
If the notes are treated as prepaid financial contracts, a U.S. Holder (as defined in the product supplement) should generally recognize gain or loss upon the sale, exchange or maturity of its notes (subject to the discussion under “Material U.S. Federal Income Tax Consequences – Constructive Ownership Transaction Rules” in the product supplement) in an amount equal to the difference between the amount realized at such time and the U.S. Holder’s tax basis in its notes (generally the amount paid for the notes). Such gain or loss generally should be long-term capital gain or loss if the notes have been held for more than one year. For notes with a term of one year or less, such gain or loss will be short-term capital gain or loss. A U.S. Holder will treat any interest payment received in respect of a note as ordinary income includible in such U.S. Holder’s income in accordance with the U.S. Holder’s method of accounting.
On January 24, 2013, the House Ways and Means Committee released in draft form certain proposed legislation relating to financial instruments. If enacted as proposed, the effect of that legislation generally would be to require instruments such as the notes acquired after December 31, 2013, to be marked to market on an annual basis with all gains and losses to be treated as ordinary, subject to certain exceptions. You are urged to consult your tax advisor regarding the draft legislation and its possible impact on you.
You should consult your tax advisor concerning the U.S. federal income tax and other tax consequences of your investment in the notes in your particular circumstances, including the application of state, local or other tax laws and the possible effects of changes in federal or other tax laws.
Non-U.S. Holders
The U.S. withholding tax consequences of any interest payment in respect of the notes is uncertain. Given the uncertainty, we will withhold U.S. income tax at a rate of 30% on any interest payment. It may be possible for a holder of the notes that is not a U.S. Holder (a “Non-U.S. Holder”) to take the position that some or all of an interest payment is exempt from the 30% U.S. withholding tax or subject to a reduced withholding tax rate under an applicable tax treaty.
The Treasury Department has issued proposed and temporary regulations under Section 871 of the Internal Revenue Code of 1986, as amended, which could ultimately require us to treat all or a portion of any payment or deemed payment in respect of your notes, to the extent attributable to U.S.-source dividends, as a “dividend equivalent” payment that is subject to withholding tax at a rate of 30% (or a lower rate under an applicable treaty). You could also be required to make certain certifications in order to avoid or minimize such withholding obligations, and you could be subject to withholding (subject to your potential right to claim a refund from the IRS) if such certifications were not received or were not satisfactory. You should consult your tax advisor concerning the potential application of these regulations to payments or deemed payments you receive with respect to the notes when these regulations are finalized.
Notes Held Through Foreign Entities
Under the “Hiring Incentives to Restore Employment Act” and recently finalized regulations, a 30% withholding tax is imposed on “withholdable payments” and certain “passthru payments” made to foreign financial institutions (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. See “Material U.S. Federal Income Tax Consequences—Notes Held Through Foreign Entities” in the product supplement.
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Where You Can Find More Information
We have filed a registration statement (including a product supplement, a prospectus supplement, and a prospectus) with the SEC for the offering to which this term sheet relates. Before you invest, you should read the Note Prospectus, including this term sheet, and the other documents that we have filed with the SEC, for more complete information about us and this offering. You may get these documents without cost by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, we, any agent, or any dealer participating in this offering will arrange to send you these documents if you so request by calling MLPF&S toll-free at 1-866-500-5408.
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