Subject to Completion
Preliminary Term Sheet dated July 1, 2022
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Filed Pursuant to Rule 433 Registration Statement No. 333-259205 (To Prospectus dated September 14, 2021, Prospectus Supplement dated September 14, 2021 and Product Supplement EQUITY ARN-1 dated November 29, 2021 |
Units
$10 principal amount per unit CUSIP No. |
Pricing Date*
Settlement Date* Maturity Date* |
July , 2022
August , 2022
September , 2023
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*Subject to change based on the actual date the notes are priced for initial sale to the public (the “pricing date”)
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Accelerated Return Notes® Linked to the Nasdaq-100 Index®
■ Maturity of approximately 14 months
■ 3-to-1 upside exposure to increases in the Index, subject to a capped return of [19.00% to
23.00%]
■ 1-to-1 downside exposure to decreases in the Index, with 100% of your principal at risk
■ All payments occur at maturity and are subject to the credit risk of Royal Bank of Canada
■ No periodic interest payments
■ In addition to the underwriting discount set forth below, the notes include a hedging-related
charge of $0.05 per unit. See “Structuring the Notes”
■ Limited secondary market liquidity, with no exchange listing
■ The notes are unsecured debt securities and are not
savings accounts or insured deposits of a bank. The notes are not insured or guaranteed by the Canada Deposit Insurance Corporation, the U.S. Federal Deposit Insurance Corporation, or any other governmental agency of Canada or the
United States
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Per Unit
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Total
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Public offering price(1)
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$10.000
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$
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Underwriting discount(1)
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$0.175
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$
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Proceeds, before expenses, to RBC
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$9.825
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$
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(1) |
For any purchase of 300,000 units or more in a single transaction by an individual investor or in combined transactions with the investor’s household in this offering, the public offering price and the underwriting discount will be $9.950
per unit and $0.125 per unit, respectively. See “Supplement to the Plan of Distribution” below.
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Are Not FDIC Insured
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Are Not Bank Guaranteed
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May Lose Value
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Accelerated Return Notes®
Linked to the Nasdaq-100 Index®, due September , 2023 |
Issuer:
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Royal Bank of Canada (“RBC”)
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Principal Amount:
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$10.00 per unit
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Term:
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Approximately 14 months
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Market Measure:
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The Nasdaq-100 Index® (Bloomberg symbol: “NDX”), a price return index.
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Starting Value:
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The closing level of the Market Measure on the pricing date
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Ending Value:
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The average of the closing levels of the Market Measure on each calculation day occurring during the Maturity Valuation Period. The scheduled calculation days are subject
to postponement in the event of Market Disruption Events, as described on page PS-24 of product supplement EQUITY ARN-1.
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Participation Rate:
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300%
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Capped Value:
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[$11.90 to $12.30] per unit, which represents a return of [19.00% to 23.00%] over the principal amount. The actual Capped Value will be determined on the pricing date.
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Maturity Valuation
Period:
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Five scheduled calculation days shortly before the maturity date.
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Fees and Charges:
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The underwriting discount of $0.175 per unit listed on the cover page and the hedging related charge of $0.05 per unit described in “Structuring the Notes” below.
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Calculation Agent:
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BofA Securities, Inc. (“BofAS”).
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Accelerated Return Notes®
Linked to the Nasdaq-100 Index®, due September , 2023 |
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Product supplement EQUITY ARN-1 dated November 29, 2021:
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Series I MTN prospectus supplement dated September 14, 2021:
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Prospectus dated September 14, 2021:
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You anticipate that the Index will increase moderately from the Starting Value to the Ending Value.
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You are willing to risk a loss of principal and return if the Index decreases from the Starting Value to the Ending Value.
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You accept that the return on the notes will be capped.
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You are willing to forgo the interest payments that are paid on conventional interest bearing debt securities.
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You are willing to forgo dividends or other benefits of owning the stocks included in the Index.
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You are willing to accept a limited or no 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.
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You are willing to assume our credit risk, as issuer of the notes, for all payments under the notes, including the Redemption Amount.
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You believe that the Index will decrease from the Starting Value to the Ending Value or that it will not increase sufficiently over the term of the notes to provide you with your desired return.
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You seek principal repayment or preservation of capital.
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You seek an uncapped return on your investment.
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You seek interest payments or other current income on your investment.
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You want to receive dividends or other distributions paid on the stocks included in the Index.
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You seek an investment for which there will be a liquid secondary market.
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You are unwilling or are unable to take market risk on the notes or to take our credit risk as issuer of the notes.
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We urge you to consult your investment, legal, tax, accounting, and other advisors before you invest in the notes.
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Accelerated Return Notes®
Linked to the Nasdaq-100 Index®, due September , 2023 |
Ending Value
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Percentage Change from the
Starting Value to the Ending
Value
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Redemption Amount per
Unit
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Total Rate of Return on the
Notes
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0.00
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-100.00%
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$0.00
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-100.00%
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50.00
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-50.00%
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$5.00
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-50.00%
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80.00
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-20.00%
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$8.00
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-20.00%
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90.00
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-10.00%
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$9.00
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-10.00%
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94.00
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-6.00%
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$9.40
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-6.00%
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97.00
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-3.00%
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$9.70
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-3.00%
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100.00(1)
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0.00%
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$10.00
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0.00%
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102.00
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2.00%
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$10.60
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6.00%
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103.00
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3.00%
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$10.90
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9.00%
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107.00
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7.00%
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$12.10(2)
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21.00%
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110.00
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10.00%
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$12.10
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21.00%
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120.00
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20.00%
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$12.10
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21.00%
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130.00
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30.00%
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$12.10
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21.00%
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140.00
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40.00%
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$12.10
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21.00%
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150.00
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50.00%
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$12.10
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21.00%
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160.00
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60.00%
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$12.10
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21.00%
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(1) |
The hypothetical Starting Value of 100 used in these examples has been chosen for illustrative purposes only, and does not represent a likely actual Starting Value for the Market Measure.
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(2) |
The Redemption Amount per unit cannot exceed the hypothetical Capped Value.
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Accelerated Return Notes®
Linked to the Nasdaq-100 Index®, due September , 2023 |
Example 1
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The Ending Value is 80.00, or 80.00% of the Starting Value:
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Starting Value:
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100.00
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Ending Value:
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80.00
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= $8.00 Redemption Amount per unit
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Example 2
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The Ending Value is 103.00, or 103.00% of the Starting Value:
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Starting Value:
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100.00
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Ending Value:
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103.00
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= $10.90 Redemption Amount per unit
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Example 3
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The Ending Value is 130.00, or 130.00% of the Starting Value:
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Starting Value:
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100.00
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Ending Value:
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130.00
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= $19.00, however, because the Redemption Amount for the notes cannot exceed the Capped Value, the Redemption Amount will be $12.10 per unit
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Accelerated Return Notes®
Linked to the Nasdaq-100 Index®, due September , 2023 |
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Depending on the performance of the Index as measured shortly before the maturity date, your investment may result in a loss; there is no guaranteed return of principal.
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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.
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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.
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Your investment return is limited to the return represented by the Capped Value and may be less than a comparable investment directly in the stocks included in the Index.
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The initial estimated value of the notes is an estimate only, determined as of a particular point in time by reference to our and our affiliates’ pricing models. These pricing models consider certain assumptions and variables, including
our credit spreads, our internal funding rate on the pricing date, mid-market terms on hedging transactions, expectations on interest rates and volatility, price-sensitivity analysis, and the expected term of the notes. These pricing models
rely in part on certain forecasts about future events, which may prove to be incorrect.
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The public offering price you pay for the notes will exceed the initial estimated value. If you attempt to sell the notes prior to maturity, their market value may be lower than the price you paid for them and lower than the initial
estimated value. This is due to, among other things, changes in the level of the Index, our internal funding rate, and the inclusion in the public offering price of the underwriting discount and the hedging related charge, all as further
described in “Structuring the Notes” below. 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.
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The initial estimated value does not represent a minimum or maximum price at which we, MLPF&S, BofAS or any of our affiliates would be willing to purchase your notes in any secondary market (if any exists) at any time. The value of
your notes at any time after issuance will vary based on many factors that cannot be predicted with accuracy, including the performance of the Index, our creditworthiness and changes in market conditions.
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A trading market is not expected to develop for the notes. None of us, MLPF&S or BofAS is obligated to make a market for, or to repurchase, the notes. There is no assurance that any party will be willing to purchase your notes at any
price in any secondary market.
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Our business, hedging and trading activities, and those of MLPF&S, BofAS and our respective affiliates (including trades in shares of companies included in the Index), and any hedging and trading activities we, MLPF&S, BofAS 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.
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There may be potential conflicts of interest involving the calculation agent, which is BofAS. We have the right to appoint and remove the calculation agent.
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The Index sponsor may adjust the Index in a way that affects its level, and has no obligation to consider your interests.
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You will have no rights of a holder of the securities represented by the Index, and you will not be entitled to receive securities or dividends or other distributions by the issuers of those securities.
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While we, MLPF&S, BofAS or our respective affiliates may from time to time own securities of companies included in the Index, we, MLPF&S, BofAS and our respective affiliates do not control any company included in the Index, and
have not verified any disclosure made by any other company.
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Accelerated Return Notes®
Linked to the Nasdaq-100 Index®, due September , 2023 |
■ |
The U.S. federal income tax consequences of the notes are uncertain, and may be adverse to a holder of the notes. See “Summary of U.S. Federal Income Tax Consequences” below and “U.S. Federal Income Tax Summary” beginning on page PS-39 of
product supplement EQUITY ARN-1. For a discussion of the Canadian federal income tax consequences of investing in the notes, see “Tax Consequences—Canadian Taxation” in the prospectus dated September 14, 2021.
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Accelerated Return Notes®
Linked to the Nasdaq-100 Index®, due September , 2023 |
• |
the security’s U.S. listing must be exclusively on the Nasdaq Global Select Market or the Nasdaq Global Market;
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the security must be issued by a non-financial company;
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the security may not be issued by an issuer currently in bankruptcy proceedings;
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the security must generally be a common stock, ordinary share, American Depositary Receipt, or tracking stock (closed-end funds, convertible debentures, exchange traded funds, limited liability companies, limited partnership interests,
preferred stocks, rights, shares or units of beneficial interests, warrants, units and other derivative securities are not included in the NDX, nor are the securities of investment companies);
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the security must have a three-month average daily trading volume of at least 200,000 shares;
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if the security is issued by an issuer organized under the laws of a jurisdiction outside the United States, it must have listed options on a recognized market in the United States or be eligible for listed-options trading on a recognized
options market in the United States;
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the issuer of the security may not have entered into a definitive agreement or other arrangement which would likely result in the security no longer being eligible;
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the issuer of the security may not have annual financial statements with an audit opinion that is currently withdrawn; and
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the security must have traded for at least three full calendar months, not including the month of initial listing, on an “eligible exchange,” as determined under the index rules.
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Accelerated Return Notes®
Linked to the Nasdaq-100 Index®, due September , 2023 |
• |
the security’s U.S. listing must be exclusively on the Nasdaq Global Select Market or the Nasdaq Global Market;
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the security must be issued by a non-financial company;
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the security may not be issued by an issuer currently in bankruptcy proceedings;
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the security must have an average daily trading volume of at least 200,000 shares in the previous three‑month trading period as measured annually during the ranking review process described below;
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if the issuer of the security is organized under the laws of a jurisdiction outside the United States, then such security must have listed options on a recognized market in the United States or be eligible for listed‑options trading on a
recognized options market in the United States, as measured annually during the ranking review process;
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the issuer of the security may not have entered into a definitive agreement or other arrangement that would likely result in the security no longer being eligible;
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the security must have an adjusted market capitalization equal to or exceeding 0.10% of the aggregate adjusted market capitalization of the NDX at each month-end. In the event that a company does not meet this criterion for two consecutive
month-ends, it will be removed from the NDX effective after the close of trading on the third Friday of the following month; and
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the issuer of the security may not have annual financial statements with an audit opinion that is currently withdrawn.
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Accelerated Return Notes®
Linked to the Nasdaq-100 Index®, due September , 2023 |
Accelerated Return Notes®
Linked to the Nasdaq-100 Index®, due September , 2023 |
• |
the investor’s spouse (including a domestic partner), siblings, parents, grandparents, spouse’s parents, children and grandchildren, but excluding accounts held by aunts, uncles, cousins, nieces, nephews or any
other family relationship not directly above or below the individual investor;
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a family investment vehicle, including foundations, limited partnerships and personal holding companies, but only if the beneficial owners of the vehicle consist solely of the investor or members of the
investor’s household as described above; and
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a trust where the grantors and/or beneficiaries of the trust consist solely of the investor or members of the investor’s household as described above; provided that, purchases of the notes by a trust generally
cannot be aggregated together with any purchases made by a trustee’s personal account.
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Accelerated Return Notes®
Linked to the Nasdaq-100 Index®, due September , 2023 |
Accelerated Return Notes®
Linked to the Nasdaq-100 Index®, due September , 2023 |
◾ |
There is no statutory, judicial, or administrative authority directly addressing the characterization of the notes.
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You agree with us (in the absence of a statutory, regulatory, administrative, or judicial ruling to the contrary) to characterize and treat the notes for all tax purposes as pre-paid cash-settled derivative contracts in respect of the
Index.
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Under this characterization and tax treatment of the notes, a U.S. holder (as defined on page 42 of the prospectus) generally will recognize capital gain or loss upon the sale or maturity of the notes. This capital gain or loss generally
will be long-term capital gain or loss if you held the notes for more than one year.
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No assurance can be given that the Internal Revenue Service or any court will agree with this characterization and tax treatment.
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