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 February 3, 2023
Pricing Supplement Dated February __, 2023 to the Prospectus dated September 14, 2021, the Prospectus Supplement dated September 14, 2021, and the Product Prospectus
Supplement dated March 3, 2022
|
$
Buffered Enhanced Return Notes
Linked to the Invesco QQQ Trust, Series 1, Due March 4, 2026 Royal Bank of Canada |
||
Reference Asset
|
Initial Price*
|
Buffer Price
|
||
Invesco QQQ Trust, Series 1 ("QQQ")
|
85% of its Initial Price
|
• |
If the Final Price of the Reference Asset is greater than the Initial Price, the Notes will pay at maturity a return equal to 136% of the Percentage Change, subject to a Maximum Redemption Amount of 134.05% of the
principal amount of the Notes.
|
• |
If the Final Price is less than or equal to the Initial Price, but greater than or equal to the Buffer Price, the Notes will pay the principal amount at maturity.
|
• |
If the Final Price is less than the Buffer Price, investors will lose 1% of the principal amount for each 1% that the Final Price has decreased by more than 15% from the Initial Price.
|
• |
Any payments on the Notes are subject to our credit risk.
|
• |
The Notes do not pay interest.
|
• |
The Notes will not be listed on any securities exchange.
|
Per Note
|
Total
|
||
Price to public (1)
|
100.00%
|
$
|
|
Underwriting discounts and commissions (1)
|
3.50%
|
$
|
|
Proceeds to Royal Bank of Canada
|
96.50%
|
$
|
|
|
Buffered Enhanced Return Notes
|
Issuer:
|
Royal Bank of Canada (“Royal Bank”)
|
Underwriter:
|
RBC Capital Markets, LLC (“RBCCM”)
|
Reference Asset:
|
Invesco QQQ Trust, Series 1 (QQQ). The Reference Asset is a unit investment trust designed to invest in the securities that constitute the Nasdaq-100 Index®.
|
Minimum Investment:
|
$1,000 and minimum denominations of $1,000 in excess thereof
|
Trade Date (Pricing
Date):
|
February 27, 2023
|
Issue Date:
|
March 2, 2023
|
Valuation Date:
|
February 27, 2026
|
Maturity Date:
|
March 4, 2026, subject to extension for market and other disruptions, as described in the product prospectus supplement dated March 3, 2022.
|
Payment at Maturity
(if held to maturity):
|
If the Final Price is greater than the Initial Price (that is, the Percentage Change is positive), then the
investor will receive an amount per $1,000 principal amount per Note equal to the lesser of:
1. Principal Amount + [Principal Amount x
(Percentage Change x Leverage Factor)] and
2. the Maximum Redemption Amount
If the Final Price is less than or equal to the Initial Price, but is greater than or equal to the Buffer Price (that is, the Percentage Change is between
0% and -15.00%), then the investor will receive the principal amount only.
If the Final Price is less than the Buffer Price (that is, the Percentage Change is between -15.01% and -100%), then the investor
will receive a cash payment equal to:
Principal Amount + [Principal Amount x (Percentage Change + Buffer Percentage)]
In this case, you will lose some or a significant portion of the principal amount.
|
Percentage Change:
|
The Percentage Change, expressed as a percentage, is calculated using the following formula:
|
Initial Price:
|
The closing share price of the Reference Asset on the Trade Date.
|
Final Price:
|
The closing share price of the Reference Asset on the Valuation Date.
|
Leverage Factor:
|
136% (subject to the Maximum Redemption Amount)
|
Maximum
Redemption Amount:
|
134.05% multiplied by the principal amount, or $1,340.50 per $1,000 in principal amount
|
Buffer Percentage:
|
15%
|
Buffer Price:
|
85% of the Initial Price
|
|
|
Buffered Enhanced Return Notes
|
Principal at Risk:
|
The Notes are NOT principal protected. You may lose a substantial portion of your principal amount at maturity if the Final Price is less than the Buffer
Price.
|
Calculation Agent:
|
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 pre-paid cash-settled derivative contract 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 dated March 3, 2022 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 of your Notes.
|
Listing:
|
The Notes will not be listed on any securities exchange.
|
Clearance and
Settlement:
|
DTC global (including through its indirect participants Euroclear and Clearstream, Luxembourg as described under “Ownership and Book-Entry Issuance” in the prospectus dated September 14, 2021).
|
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 applicable terms appearing under the captions “General Terms of the
Notes” and “Supplemental Discussion of U.S. Federal Income Tax Consequences” in the product prospectus supplement dated March 3, 2022, as modified by this terms supplement.
|
|
|
Buffered Enhanced Return Notes
|
|
|
Buffered Enhanced Return Notes
|
Example 1 —
|
Calculation of the Payment at Maturity where the Percentage Change is positive.
|
|
Percentage Change:
|
2%
|
|
Payment at Maturity:
|
$1,000 + [$1,000 x (2% x 136%)] = $1,000 + $27.20 = $1,027.20
|
|
On a $1,000 investment, a 2% Percentage Change results in a Payment at Maturity of $1,027.20, a 2.72% return on the Notes.
|
Example 2 —
|
Calculation of the Payment at Maturity where the Percentage Change is positive (and the Payment at Maturity is subject to the Maximum Redemption Amount).
|
|
Percentage Change:
|
35%
|
|
Payment at Maturity:
|
$1,000 + [$1,000 x (35% x 136%)] = $1,000 + $476 = $1,476
However, the Maximum Redemption Amount is $1,340.50. Accordingly, you will receive a payment at maturity equal to $1,340.50 per $1,000 in principal amount of the Notes.
|
|
On a $1,000 investment, a 35% Percentage Change results in a Payment at Maturity of $1,340.50, a 34.05% return on the Notes.
|
Example 3 —
|
Calculation of the Payment at Maturity where the Percentage Change is negative (but not by more than the Buffer Percentage).
|
|
Percentage Change:
|
-8%
|
|
Payment at Maturity:
|
At maturity, if the Percentage Change is negative BUT not by more than the Buffer Percentage, then the Payment at Maturity will equal the principal amount.
|
|
On a $1,000 investment, a -8% Percentage Change results in a Payment at Maturity of $1,000, a 0% return on the Notes.
|
Example 4 —
|
Calculation of the Payment at Maturity where the Percentage Change is negative (by more than the Buffer Percentage).
|
|
Percentage Change:
|
-35%
|
|
Payment at Maturity:
|
$1,000 + [$1,000 x (-35% + 15%)] = $1,000 - $200 = $800
|
|
On a $1,000 investment, a -35% Percentage Change results in a Payment at Maturity of $800, a -20% return on the Notes.
|
|
|
Buffered Enhanced Return Notes
|
Hypothetical Percentage
Change
|
Redemption Amount as
Percentage of Principal Amount
|
Redemption Amount
per $1,000 in Principal
Amount
|
40.00%
|
134.05%
|
$1,340.50
|
30.00%
|
134.05%
|
$1,340.50
|
25.04%
|
134.05%
|
$1,340.50
|
20.00%
|
127.20%
|
$1,272.00
|
15.00%
|
120.40%
|
$1,204.00
|
10.00%
|
113.60%
|
$1,136.00
|
5.00%
|
106.80%
|
$1,068.00
|
2.00%
|
102.72%
|
$1,027.20
|
0.00%
|
100.00%
|
$1,000.00
|
-5.00%
|
100.00%
|
$1,000.00
|
-10.00%
|
100.00%
|
$1,000.00
|
-15.00%
|
100.00%
|
$1,000.00
|
-20.00%
|
95.00%
|
$950.00
|
-30.00%
|
85.00%
|
$850.00
|
-40.00%
|
75.00%
|
$750.00
|
-50.00%
|
65.00%
|
$650.00
|
-60.00%
|
55.00%
|
$550.00
|
-70.00%
|
45.00%
|
$450.00
|
-80.00%
|
35.00%
|
$350.00
|
-90.00%
|
25.00%
|
$250.00
|
-100.00%
|
15.00%
|
$150.00
|
|
|
Buffered Enhanced Return Notes
|
• |
You May Receive Less Than the Principal Amount at Maturity — Investors in the Notes could lose a substantial portion of their principal amount if there is a decline in the
share price of the Reference Asset. You will lose 1% of the principal amount of the Notes for each 1% that the Final Price is less than the Initial Price by more than 15%.
|
• |
The Notes Do Not Pay Interest and Your Return May Be Lower than the Return on a Conventional Debt Security of Comparable Maturity — There will be no periodic interest payments
on the Notes as there would be on a conventional fixed-rate or floating-rate debt security having the same 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.
|
• |
Your Potential Payment at Maturity Is Limited — The Notes will provide less opportunity to participate in the appreciation of the Reference Asset than an investment in a
security linked to the Reference Asset providing full participation in the appreciation, because the payment at maturity will not exceed the Maximum Redemption Amount. Accordingly, your return on the Notes may be less than your return would be
if you made an investment in a security directly linked to the positive performance of the Reference Asset.
|
• |
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 the amount due on the maturity date is dependent upon our ability to repay our obligations at that time. This will be the case even if the share price of the Reference Asset increases
after the Trade Date. No assurance can be given as to what our financial condition will be at the maturity of the Notes.
|
• |
You Will Not Have Any Rights to the Securities Included in the Reference Asset — As a holder of the Notes, you will not have voting rights or rights to receive cash dividends
or other distributions or other rights that holders of securities included in the Reference Asset would have. The Final Price will not reflect any dividends paid on the securities included in the Reference Asset, and accordingly, any positive
return on the Notes may be less than the potential positive return on those securities.
|
• |
Payments on the Notes Are Subject to Postponement Due to Market Disruption Events and Adjustments — The payment at maturity and the Valuation Date are subject to adjustment as
described in the product prospectus supplement. For a description of what constitutes a market disruption event as well as the consequences of that market disruption event, see "General Terms of the Notes-Market Disruption Events" in the
product prospectus supplement.
|
• |
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 of our other affiliates 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.
|
|
|
Buffered Enhanced Return Notes
|
• |
The Initial Estimated Value of the Notes Will Be Less than the Price to the Public — The initial estimated value of the Notes that will be set forth on the cover page of the
final pricing supplement for the Notes will 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 share 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 or the
hedging costs relating to the Notes. In addition to bid-ask spreads, the value of the Notes determined 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.
|
• |
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 the 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.
|
|
|
Buffered Enhanced Return Notes
|
• |
An Investment in the Notes linked to the QQQ Is Subject to Risks Relating to Non-U.S. Securities Markets — Because
certain securities held by the QQQ are issued by non-U.S. issuers and/or are traded outside of the U.S., an investment in the Notes involves particular risks. For example, the relevant non-U.S. securities markets may be more volatile than the
U.S. securities markets, and market developments may affect these markets differently from the U.S. or other securities markets. Direct or indirect government intervention to stabilize the securities markets outside the U.S., as well as
cross-shareholdings in certain companies, may affect trading prices and trading volumes in those markets. Also, the public availability of information concerning the foreign issuers may vary depending on their home jurisdiction and the
requirements imposed by their respective regulators.
|
• |
Adjustments to the Reference Asset Could Adversely Affect the Notes — The Advisor of the Reference Asset is responsible for calculating and maintaining the Reference Asset.
The Advisor can add, delete or substitute the stocks comprising the Reference Asset. The Advisor may make other methodological changes that could change the share price of the Reference Asset at any time. If one or more of these events occurs,
the calculation of the amount payable at maturity may be adjusted to reflect such event or events. Consequently, any of these actions could adversely affect the amount payable at maturity and/or the market value of the Notes.
|
• |
Changes that Affect the Underlying Index Will Affect the Market Value of the Notes and the Amount You Will Receive at Maturity — The policies of the sponsor of the Underlying
Index (the “Index Sponsor”), concerning the calculation of the Underlying Index, additions, deletions or substitutions of the components of the Underlying Index and the manner in which changes affecting those components, such as stock
dividends, reorganizations or mergers, may be reflected in the Underlying Index and, therefore, could affect the share price of the Reference Asset, the amount payable on the Notes at maturity, 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 Index Sponsor changes these policies, for example, by changing the manner in which it calculates the Underlying Index, or if the sponsor discontinues
or suspends the calculation or publication of the Underlying Index.
|
• |
We Have No Affiliation with the Index Sponsor and Will Not Be Responsible for Any Actions Taken by the Index Sponsor — The Index
Sponsor is not our affiliate and will not be involved in the offering of the Notes in any way. Consequently, we have no control over the actions of the Index Sponsor, including any actions of the type that would require the calculation agent to
adjust the payment to you at maturity. The Index Sponsor has no obligation of any sort with respect to the Notes. Thus, the Index Sponsor has no obligation to take your interests into consideration for any reason, including in taking any
actions that might affect the value of the Notes. None of our proceeds from the issuance of the Notes will be delivered to the Index Sponsor.
|
• |
We and Our Affiliates Do Not Have Any Affiliation with the Advisor and Are Not Responsible for its Public Disclosure of Information — We and our affiliates are not affiliated
with Advisor in any way and have no ability to control or predict its actions, including any errors in or discontinuance of disclosure regarding its methods or policies relating to the Reference Asset. The Advisor is not involved in the
offering of the Notes in any way and has no obligation to consider your interests as an owner of the Notes in taking any actions relating to the Reference Asset that might affect the value of the Notes. Neither we nor any of our affiliates has
independently verified the adequacy or accuracy of the information about the Advisor or the Reference Asset contained in any public disclosure of information. You, as an investor in the Notes, should make your own investigation into the
Reference Asset.
|
• |
The Correlation Between the Performance of the Reference Asset and the Performance of the Underlying Index May Be Imperfect — The
performance of the Reference Asset is linked principally to the performance of the Underlying Index. However, because of the potential discrepancies identified in more detail in the product prospectus supplement, the return on the Reference
Asset may correlate imperfectly with the return on the Underlying Index.
|
|
|
Buffered Enhanced Return 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 prices 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 the issuers of the securities held by the Reference Asset, 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.
|
|
|
Buffered Enhanced Return Notes
|
|
|
Buffered Enhanced Return Notes
|
|
|
Buffered Enhanced Return Notes
|
|
|
Buffered Enhanced Return Notes
|
|
|
Buffered Enhanced Return Notes
|
|
|
Buffered Enhanced Return Notes
|
|
|
Buffered Enhanced Return Notes
|