Filed Pursuant to Rule 433
Registration Statement No. 333-259205
|
|||
The information in this
preliminary terms supplement is not complete and may be changed.
|
|||
Preliminary Terms Supplement
Subject to Completion:
Dated May 19, 2022
Pricing Supplement Dated May __, 2022 to the Product Prospectus Supplement No. CCBN-1 Dated September 14, 2021, the Prospectus Supplement Dated September
14, 2021 and the Prospectus Dated September 14, 2021
|
$_________
Auto-Callable Contingent Coupon Barrier Notes
Linked to the SPDR® S&P® Biotech ETF, Due May
20, 2025
Royal Bank of Canada
|
||
Issuer:
|
Royal Bank of Canada
|
Stock Exchange Listing:
|
None
|
|
Trade Date:
|
May 26, 2022
|
Principal Amount:
|
$1,000 per Note
|
|
Issue Date:
|
May 31, 2022
|
Maturity Date:
|
May 30, 2025
|
|
Observation Dates:
|
Quarterly, as set forth below.
|
Coupon Payment Dates:
|
Quarterly, as set forth below
|
|
Valuation Date:
|
May 27, 2025
|
Contingent Coupon Rate:
|
[11.50%-12.50%] per annum (to be determined on the Trade Date)
|
|
Initial Price:
|
The closing price of the Reference Asset on the Trade Date.
|
|||
Final Price:
|
The closing price of the Reference Asset on the Valuation Date.
|
|||
Call Price:
|
100% of the Initial Price.
|
|||
Trigger Price and Coupon
Barrier:
|
60% of the Initial Price.
|
|||
Contingent Coupon:
|
If the closing price of the Reference Asset is greater than or equal to the Coupon Barrier on the applicable Observation Date, we will pay the Contingent
Coupon applicable to that Observation Date. You may not receive any Contingent Coupons during the term of the Notes.
|
|||
Payment at Maturity (if
held to maturity):
|
If the Notes are not previously called, we will pay you at maturity an amount based on the Final Price:
For each $1,000 in principal amount, $1,000 plus the Contingent Coupon at maturity, unless the Final Price is less than the Trigger Price.
If the Final Price is less than the Trigger Price, then the investor will receive at maturity, for each $1,000 in principal amount, a cash payment equal
to: $1,000 + ($1,000 x Reference Asset Return)
Investors in the Notes will lose some or all of their principal amount if the Final Price is less than the Trigger Price.
|
|||
Call Feature:
|
If the closing price of the Reference Asset is greater than or equal to the Call Price starting on November 28, 2022 and on any Observation Date thereafter, the Notes will be automatically
called for 100% of their principal amount, plus the Contingent Coupon applicable to the corresponding Observation Date.
|
|||
Call Settlement Dates:
|
The Coupon Payment Date corresponding to that Observation Date.
|
|||
CUSIP:
|
78016FKY9
|
Per Note
|
Total
|
||
Price to public(1)
|
100.00%
|
$
|
|
Underwriting discounts and commissions(1)
|
2.25%
|
$
|
|
Proceeds to Royal Bank of Canada
|
97.75%
|
$
|
|
|
Auto-Callable Contingent Coupon Barrier Notes
|
General:
|
This terms supplement relates to an offering of Auto-Callable Contingent Coupon Barrier Notes (the “Notes”) linked to the SPDR® S&P® Biotech ETF (the
“Reference Asset”).
|
Issuer:
|
Royal Bank of Canada (“Royal Bank”)
|
Trade Date:
|
May 26, 2022
|
Issue Date:
|
May 31, 2022
|
Valuation Date:
|
May 27, 2025
|
Maturity Date:
|
May 30, 2025
|
Denominations:
|
Minimum denomination of $1,000, and integral multiples of $1,000 thereafter.
|
Contingent Coupon:
|
We will pay you a Contingent Coupon during the term of the Notes, periodically in arrears on each Coupon Payment Date, under the conditions described below:
• If the closing price of the Reference Asset is greater than or equal to the Coupon Barrier on the applicable Observation Date, we will pay the Contingent Coupon applicable to that Observation
Date.
• If the closing price of the Reference Asset is less than the Coupon Barrier on the applicable Observation Date, we will not pay you the Contingent Coupon applicable to that Observation Date.
You may not receive a Contingent Coupon for one or more quarterly periods during the term of the Notes.
|
Contingent Coupon Rate:
|
[11.50% - 12.50%] per annum ([2.875% - 3.125%] per quarter), to be determined on the Trade Date.
|
Observation Dates:
|
Quarterly on August 26, 2022, November 28, 2022, February 27, 2023, May 26, 2023, August 28, 2023, November 27, 2023, February 26, 2024, May 28, 2024, August 26, 2024,
November 26, 2024, February 26, 2025 and the Valuation Date.
|
Coupon Payment Dates:
|
The Contingent Coupon, if payable, will be paid quarterly on August 31, 2022, December 1, 2022, March 2, 2023, June 1, 2023, August 31, 2023, November 30, 2023, February 29,
2024, May 31, 2024, August 29, 2024, December 2, 2024, March 3, 2025 and the Maturity Date.
|
Record Dates:
|
The record date for each Coupon Payment Date will be one business day prior to that scheduled Coupon Payment Date; provided, however, that any Contingent Coupon payable at
maturity or upon a call will be payable to the person to whom the payment at maturity or upon the call, as the case may be, will be payable.
|
Call Feature:
|
If, starting on November 28, 2022 and on any Observation Date thereafter, the closing price of the Reference Asset is greater than or
equal to the Call Price, then the Notes will be automatically called.
|
Call Settlement Dates:
|
If the Notes are called on any Observation Date starting on November 28, 2022 and thereafter, the Call Settlement Date will be the Coupon Payment Date corresponding to that
Observation Date.
|
|
|
Auto-Callable Contingent Coupon Barrier Notes
|
Payment if Called:
|
If the Notes are automatically called, then, on the applicable Call Settlement Date, for each $1,000 principal amount, you will receive $1,000 plus the Contingent Coupon
otherwise due on that Call Settlement Date.
|
Initial Price:
|
The closing price of the Reference Asset on the Trade Date.
|
Final Price:
|
The closing price of the Reference Asset on the Valuation Date.
|
Call Price:
|
100% of the Initial Price.
|
Trigger Price and
Coupon Barrier:
|
60% of the Initial Price.
|
Payment at Maturity (if
not previously called and
held to maturity):
|
If the Notes are not previously called, we will pay you at maturity an amount based on the Final Price:
• If the Final Price is greater than or equal to the Trigger Price, we will pay you a cash payment equal to the principal amount plus the Contingent Coupon otherwise due on the Maturity Date.
• If the Final Price is below the Trigger Price, you will receive at maturity, for each $1,000 in principal amount, a cash payment equal to: $1,000 + ($1,000 x Reference Asset Return)
The amount of cash that you receive will be less than your principal amount, if anything, resulting in a loss that is proportionate to the decline of the Reference Asset from
the Trade Date to the Valuation Date. Investors in the Notes will lose some or all of their principal amount if the Final Price is less than the Trigger Price.
|
Reference Asset Return:
|
Final Price - Initial Price
Initial Price
|
Stock Settlement:
|
Not applicable. Payments on the Notes will be made solely in cash.
|
Market Disruption
Events:
|
The occurrence of a market disruption event (or a non-trading day) as to the Reference Asset will result in the postponement of an Observation Date or the Valuation Date, as
described in the product prospectus supplement.
|
Calculation Agent:
|
RBC Capital Markets, LLC (“RBCCM”)
|
U.S. Tax Treatment:
|
By purchasing a Note, each holder agrees (in the absence of a change in law, an administrative determination or a judicial ruling to the contrary) to treat the Notes as a
callable pre-paid cash-settled contingent income-bearing derivative contract linked to the Reference Asset for U.S. federal income tax purposes. However, the U.S. federal income tax consequences of your investment in the Notes are uncertain
and the Internal Revenue Service could assert that the Notes should be taxed in a manner that is different from that described in the preceding sentence. Please see the section below, “Supplemental Discussion of U.S. Federal Income Tax
Consequences” and the discussion (including the opinion of Ashurst LLP, our special U.S. tax counsel) in the product prospectus supplement under “Supplemental Discussion of U.S. Federal Income Tax Consequences,” which apply to the Notes.
|
Secondary Market:
|
RBCCM (or one of its affiliates), though not obligated to do so, may maintain a secondary market in the Notes after the issue date. The amount that you may receive upon sale
of your Notes prior to maturity may be less than the principal amount.
|
Listing:
|
The Notes will not be listed on any securities exchange.
|
Settlement:
|
DTC global (including through its indirect participants Euroclear and Clearstream, Luxembourg as described under “Ownership and Book-Entry Issuance” in the prospectus).
|
|
|
Auto-Callable Contingent Coupon Barrier Notes
|
Terms Incorporated in
the Master Note:
|
All of the terms appearing on the cover page and above the item captioned “Secondary Market” on pages P-2 and P-3 of this terms supplement and the terms appearing under the
caption “General Terms of the Notes” in the product prospectus supplement, as modified by this terms supplement.
|
|
|
Auto-Callable Contingent Coupon Barrier Notes
|
|
|
Auto-Callable Contingent Coupon Barrier Notes
|
Hypothetical Initial Price:
|
$100.00*
|
|
Hypothetical Trigger Price and Coupon Barrier:
|
$60.00, which is 60% of the hypothetical Initial Price
|
|
Hypothetical Contingent Coupon Rate:
|
12.00% per annum (or 3.00% per quarter), which is the midpoint of the Contingent Coupon Rate range set forth above.
|
|
Hypothetical Contingent Coupon Amount:
|
$30.00 per quarter
|
|
Observation Dates:
|
Quarterly
|
|
Principal Amount:
|
$1,000 per Note
|
Hypothetical Final Price
|
Payment at Maturity as
Percentage of Principal Amount
|
Payment at Maturity (assuming
that the Notes were not
previously called)
|
$150.00
|
103.00%*
|
$1,030.00*
|
$140.00
|
103.00%*
|
$1,030.00*
|
$130.00
|
103.00%*
|
$1,030.00*
|
$120.00
|
103.00%*
|
$1,030.00*
|
$110.00
|
103.00%*
|
$1,030.00*
|
$100.00
|
103.00%*
|
$1,030.00*
|
$90.00
|
103.00%*
|
$1,030.00*
|
$80.00
|
103.00%*
|
$1,030.00*
|
$70.00
|
103.00%*
|
$1,030.00*
|
$60.00
|
103.00%*
|
$1,030.00*
|
$59.99
|
59.99%
|
$599.90
|
$50.00
|
50.00%
|
$500.00
|
$40.00
|
40.00%
|
$400.00
|
$30.00
|
30.00%
|
$300.00
|
$20.00
|
20.00%
|
$200.00
|
$10.00
|
10.00%
|
$100.00
|
$0.00
|
0%
|
$0.00
|
|
|
Auto-Callable Contingent Coupon Barrier Notes
|
|
|
Auto-Callable Contingent Coupon Barrier Notes
|
• |
You May Lose All or a Portion of the Principal Amount at Maturity — Investors in the Notes could lose all or a substantial portion of their principal
amount if there is a decline in the trading price of the Reference Asset between the Trade Date and the Valuation Date. If the Notes are not automatically called and the Final Price is less than the Trigger Price, the amount of cash that
you receive at maturity will represent a loss of your principal that is proportionate to the decline in the closing price of the Reference Asset from the Trade Date to the Valuation Date. Any Contingent Coupons received on the Notes prior
to the Maturity Date may not be sufficient to compensate for any such loss.
|
• |
The Notes Are Subject to an Automatic Call — If on any Observation Date beginning in November 2022, the closing price of the Reference Asset is
greater than or equal to the Call Price, then the Notes will be automatically called. If the Notes are automatically called, then, on the applicable Call Settlement Date, for each $1,000 in principal amount, you will receive $1,000 plus the
Contingent Coupon otherwise due on the applicable Call Settlement Date. You will not receive any Contingent Coupons after the Call Settlement Date. You may be unable to reinvest your proceeds from the automatic call in an investment with a
return that is as high as the return on the Notes would have been if they had not been called.
|
• |
You May Not Receive Any Contingent Coupons — We will not necessarily make any coupon payments on the Notes. If the closing price of the Reference
Asset on an Observation Date is less than the Coupon Barrier, we will not pay you the Contingent Coupon applicable to that Observation Date. If the closing price of the Reference Asset is less than the Coupon Barrier on each of the
Observation Dates and on the Valuation Date, we will not pay you any Contingent Coupons during the term of, and you will not receive a positive return on, your Notes. Generally, this non-payment of the Contingent Coupon coincides with a
period of greater risk of principal loss on your Notes. Accordingly, if we do not pay the Contingent Coupon on the Maturity Date, you will also incur a loss of principal, because the Final Price will be less than the Trigger Price.
|
• |
The Call Feature and the Contingent Coupon Feature Limit Your Potential Return — The return potential of the Notes is limited to the pre-specified
Contingent Coupon Rate, regardless of the appreciation of the Reference Asset. In addition, the total return on the Notes will vary based on the number of Observation Dates on which the Contingent Coupon becomes payable prior to maturity or
an automatic call. Further, if the Notes are called due to the Call Feature, you will not receive any Contingent Coupons or any other payment in respect of any Observation Dates after the applicable Call Settlement Date. Since the Notes
could be called as early as the second Observation Date, the total return on the Notes could be minimal. If the Notes are not called, you may be subject to the full downside performance of the Reference Asset even though your potential
return is limited to the Contingent Coupon Rate. As a result, the return on an investment in the Notes could be less than the return on a direct investment in the Reference Asset.
|
• |
Your Return on the Notes May Be Lower than the Return on a Conventional Debt Security of Comparable Maturity — The return that you will receive on the
Notes, which could be negative, may be less than the return you could earn on other investments. Even if your return is positive, your return may be less than the return you would earn if you purchased one of our conventional senior
interest bearing debt securities.
|
• |
Payments on the Notes Are Subject to Our Credit Risk, and Changes in Our Credit Ratings Are Expected to Affect the Market Value of the Notes — The
Notes are our senior unsecured debt securities. As a result, your receipt of any Contingent Coupons, if payable, and the amount due on any relevant payment date is dependent upon our ability to repay our obligations on the applicable
payment dates. This will be the case even if the price of the Reference Asset increases after the Trade Date. No assurance can be given as to what our financial condition will be at any time during the term of the Notes.
|
• |
Owning the Notes Is Not the Same as Owning the Reference Asset — The return on your Notes is unlikely to reflect the return you would realize if you
actually owned the Reference Asset. For instance, you will not receive
|
|
|
Auto-Callable Contingent Coupon Barrier Notes
|
• |
Payments on the Notes Are Subject to Postponement Due to Market Disruption Events and
|
• |
There May Not Be an Active Trading Market for the Notes-Sales in the Secondary Market May Result in Significant Losses — There may be little or no
secondary market for the Notes. The Notes will not be listed on any securities exchange. RBCCM and our other affiliates may make a market for the Notes; however, they are not required to do so. RBCCM or any other affiliate of ours may stop
any market-making activities at any time. Even if a secondary market for the Notes develops, it may not provide significant liquidity or trade at prices advantageous to you. We expect that transaction costs in any secondary market would be
high. As a result, the difference between bid and asked prices for your Notes in any secondary market could be substantial.
|
• |
The Initial Estimated Value of the Notes Will Be Less than the Price to the Public — The initial estimated value that will be set forth in the final
pricing supplement for the Notes does not represent a minimum price at which we, RBCCM or any of our affiliates would be willing to purchase the Notes in any secondary market (if any exists) at any time. If you attempt to sell the Notes
prior to maturity, their market value may be lower than the price you paid for them and the initial estimated value. This is due to, among other things, changes in the price of the Reference Asset, the borrowing rate we pay to issue
securities of this kind, and the inclusion in the price to the public of the underwriting discount and the estimated costs relating to our hedging of the Notes. These factors, together with various credit, market and economic factors over
the term of the Notes, 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. Assuming no change in market conditions or
any other relevant factors, the price, if any, at which you may be able to sell your Notes prior to maturity may be less than your original purchase price, as any such sale price would not be expected to include the underwriting discount
and the hedging costs relating to the Notes. In addition to bid-ask spreads, the value of the Notes determined by RBCCM for any secondary market price is expected to be based on the secondary rate rather than the internal funding rate used
to price the Notes and determine the initial estimated value. As a result, the secondary price will be less than if the internal funding rate was used. The Notes are not designed to be short-term trading instruments. Accordingly, you should
be able and willing to hold your Notes to maturity.
|
• |
The Initial Estimated Value of the Notes that We Will Provide in the Final Pricing Supplement Will Be an Estimate Only, Calculated as of the Time the Terms of
the Notes Are Set — The initial estimated value of the Notes will be based on the value of our obligation to make the payments on the Notes, together with the mid-market value of the
derivative embedded in the terms of the Notes. See “Structuring the Notes” below. Our estimate will be based on a variety of assumptions, including our credit spreads, expectations as to dividends, interest rates and volatility, and the
expected term of the Notes. These assumptions are based on certain forecasts about future events, which may prove to be incorrect. Other entities may value the Notes or similar securities at a price that is significantly different than we
do.
|
|
|
Auto-Callable Contingent Coupon Barrier Notes
|
• |
Our Business Activities May Create Conflicts of Interest — We and our affiliates expect to engage in trading
activities related to the Reference Asset or the securities held by the Reference Asset that are not for the account of holders of the Notes or on their behalf. These trading activities may present a conflict between the holders’ interests
in the Notes and the interests we and our affiliates will have in their proprietary accounts, in facilitating transactions, including options and other derivatives transactions, for their customers and in accounts under their management.
These trading activities, if they influence the share price of the Reference Asset, could be adverse to the interests of the holders of the Notes. We and one or more of our affiliates may, at present or in the future, engage in business
with XBI or the issuers of the securities held by XBI, including making loans to or providing advisory services. These services could include investment banking and merger and acquisition advisory services. These activities may present a
conflict between our or one or more of our affiliates’ obligations and your interests as a holder of the Notes. Moreover, we and our affiliates may have published, and in the future expect to publish, research reports with respect to the
Reference Asset. This research is modified from time to time without notice and may express opinions or provide recommendations that are inconsistent with purchasing or holding the Notes. Any of these activities by us or one or more of our
affiliates may affect the price of the Reference Asset, and, therefore, the market value of the Notes.
|
• |
You Must Rely on Your Own Evaluation of the Merits of an Investment Linked to the Reference Asset — In the ordinary course of their business, our
affiliates may have expressed views on expected movement in the Reference Asset or the equity securities that they represent, and may do so in the future. These views or reports may be communicated to our clients and clients of our
affiliates. However, these views are subject to change from time to time. Moreover, other professionals who transact business in markets relating to the Reference Asset may at any time have significantly different views from those of our
affiliates. For these reasons, you are encouraged to derive information concerning the Reference Asset from multiple sources, and you should not rely solely on views expressed by our affiliates.
|
• |
The Reference Asset and its Underlying Index Are Different — The performance of the Reference Asset may not exactly replicate the performance of its
underlying index, because the Reference Asset will reflect transaction costs and fees that are not included in the calculation of its underlying index. It is also possible that the performance of the Reference Asset may not fully replicate
or may in certain circumstances diverge significantly from the performance of its underlying index due to the temporary unavailability of certain securities in the secondary market, the performance of any derivative instruments contained in
such Reference Asset or due to other circumstances. The Reference Asset may use futures contracts, options, swap agreements, currency forwards and repurchase agreements in seeking performance that corresponds to its underlying index and in
managing cash flows.
|
• |
An Investment Linked to the Reference Asset Is Subject to Management Risk — The Reference Asset is not managed according to traditional methods of
“active” investment management, which involve the buying and selling of securities based on economic, financial and market analysis and investment judgment. Instead, the Reference Asset, utilizing a ‘‘passive’’ or indexing investment
approach, attempts to approximate the investment performance of its underlying index by investing in a portfolio of securities that generally replicate its underlying index. Therefore, unless a specific security is removed from its
underlying index, the Reference Asset generally
|
|
|
Auto-Callable Contingent Coupon Barrier Notes
|
• |
There Is No Affiliation Between the Investment Advisor or the Index Sponsor and RBCCM, and RBCCM Is Not Responsible for any Disclosure by the Investment
Advisor or the Index Sponsor — We are not affiliated with the investment adviser of the Reference Asset or the index sponsor of its underlying index. However, we and our affiliates may currently, or from time to time in the future,
engage in business with these entities. Nevertheless, neither we nor our affiliates assume any responsibilities for the accuracy or the completeness of any information that any other entity prepares. You, as an investor in the Notes, should
make your own investigation into the Reference Asset and the companies in which it invests. None of these companies are involved in this offering, and have no obligation of any sort with respect to your Notes. These companies have no
obligation to take your interests into consideration for any reason, including when taking any corporate actions that might affect the value of your Notes.
|
• |
The Policies of the Reference Asset’s Investment Adviser Could Affect the Amount Payable on the Notes and Their Market Value — The policies of the
Reference Asset’s investment adviser concerning the management of the Reference Asset, additions, deletions or substitutions of the securities held by the Reference Asset could affect the market price of shares of the Reference Asset and,
therefore, the amount payable on the Notes and the market value of the Notes. The amount payable on the Notes and their market value could also be affected if the Reference Asset’s investment adviser changes these policies, for example, by
changing the manner in which it manages the Reference Asset, or if the Reference Asset’s investment adviser discontinues or suspends maintenance of the Reference Asset, in which case it may become difficult to determine the market value of
the Notes. The Reference Asset’s investment adviser have no connection to the offering of the Notes and have no obligations to you as an investor in the Notes in making its decisions regarding the Reference Asset.
|
• |
Changes that Affect the Underlying Index of the Reference Asset Will Affect the Market Value of the Notes and the Payments on the Notes — The policies
of the sponsor of the underlying index of the Reference Asset concerning the calculation of that index, additions, deletions or substitutions of the components of that index and the manner in which changes affecting those components, such
as stock dividends, reorganizations or mergers, may be reflected in that index and, therefore, could affect the share price of the Reference Asset, the amount payable on the Notes, if applicable, and the market value of the Notes prior to
maturity. The amount payable on the Notes and their market value could also be affected if the sponsor changes these policies, for example, by changing the manner in which it calculates the index, or if the calculation or publication of the
index is discontinued or suspended.
|
• |
The Securities Included in the Underlying Index of the XBI Are Concentrated in One Sector — All of the securities included in the underlying index of
the XBI are issued by companies in the biotechnology industry. As a result, the securities that will determine the performance of the XBI and the level of the underlying index, which the XBI seeks to replicate, are concentrated in one
sector. Although an investment in the Notes will not give holders any ownership or other direct interests in the securities included in the underlying index, the return on an investment in the Notes will be subject to certain risks
associated with a direct equity investment in companies in this market sector. Accordingly, by investing in the Notes, you will not benefit from the diversification which could result from an investment linked to companies that operate in
multiple sectors.
|
• |
An Investment in the Notes Is Subject to Risks Associated with the Biotechnology Sector — All of the stocks held by the XBI and included in its
underlying index are issued by companies whose primary lines of business are directly associated with the biotechnology sector. The profitability of these companies is largely dependent on, among other things, demand for the companies’
products, safety of the companies’ products, regulatory influences on the biotechnology market (including receipt of regulatory approvals and compliance with complex regulatory requirements), pricing and reimbursement from third party
payors, continued innovation, talent attraction and retention, maintaining intellectual property rights and intense industry competition. Any negative developments affecting the biotechnology sector could affect negatively the price of the
XBI and, in turn, could have an adverse effect on the value of the Notes and the payments on the Notes.
|
|
|
Auto-Callable Contingent Coupon Barrier Notes
|
• |
have a float-adjusted market capitalization greater than or equal to $500 million with a float-adjusted liquidity ratio (defined by dollar value traded over the previous 12 months divided by the float-adjusted
market capitalization as
|
|
|
Auto-Callable Contingent Coupon Barrier Notes
|
• |
are U.S. based companies.
|
|
|
Auto-Callable Contingent Coupon Barrier Notes
|
|
|
Auto-Callable Contingent Coupon Barrier Notes
|
|
|
Auto-Callable Contingent Coupon Barrier Notes
|
|
|
Auto-Callable Contingent Coupon Barrier Notes
|