I understand HDCD to be at least a 20 bit signal encoded into 16 bits. A control signal in one of the bits (probably the least significant bit) is used by an HDCD decoder to extract the information that is contained in the extra 4+ bits. So the signal that goes to the DAC is still 16 bits but if a 16 bit converter were used, linearity would be achieved to the 14th bit at the most. So a 20 bit or higher DAC is used.