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 March 30, 2023
Pricing Supplement Dated March __, 2023 to the Prospectus dated September 14, 2021, the Prospectus Supplement dated September 14, 2021, and the Product
Prospectus Supplement dated March 3, 2022
|
$
Barrier Enhanced Return Notes Linked to the SPDR® S&P® Regional Banking ETF, Due April 3, 2025 Royal Bank of Canada |
||
Reference Asset
|
Initial Price*
|
Barrier Price
|
||
SPDR® S&P® Regional Banking ETF ("KRE")
|
75% 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 200% of the Percentage Change, subject to a Maximum Redemption Amount of at least 142%
of the principal amount of the Notes (to be determined on the Trade Date).
|
• |
If the Final Price is less than or equal to the Initial Price, but is greater than or equal to the Barrier Price, the Notes will pay the principal amount at maturity.
|
• |
If the Final Price is less than the Barrier Price, investors will lose 1% of the principal amount for each 1% decrease from the Initial Price to the Final 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)
|
2.25%
|
$
|
|
Proceeds to Royal Bank of Canada
|
97.75%
|
$
|
|
|
Barrier Enhanced Return Notes
|
Issuer:
|
Royal Bank of Canada (“Royal Bank”)
|
Underwriter:
|
RBC Capital Markets, LLC (“RBCCM”)
|
Reference Asset:
|
The SPDR® S&P® Regional Banking ETF (KRE)
|
Minimum Investment:
|
$1,000 and minimum denominations of $1,000 in excess thereof
|
Trade Date (Pricing
Date):
|
March 31, 2023
|
Issue Date:
|
April 5, 2023
|
Valuation Date:
|
March 31, 2025
|
Maturity Date:
|
April 3, 2025, 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 Barrier Price (that is, the Percentage Change is
between 0% and -25.00%), then the investor will receive the principal amount only.
If the Final Price is less than the Barrier Price (that is, the Percentage Change is between -25.01% and -100%), then the
investor will receive a cash payment equal to:
Principal Amount + (Principal Amount x Percentage Change)
In this case, you will lose all or a substantial 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:
|
200% (subject to the Maximum Redemption Amount)
|
Maximum
Redemption Amount:
|
At least 142% multiplied by the principal amount, or at least $1,420 per $1,000 in principal amount (to be determined on the Trade Date).
|
Barrier Percentage:
|
25%
|
Barrier Price:
|
75% of the Initial Price
|
Principal at Risk:
|
The Notes are NOT principal protected. You may all or a substantial portion of your principal amount at maturity if the Final Price is less than the
Barrier Price.
|
|
|
Barrier Enhanced Return Notes
|
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.
|
|
|
Barrier Enhanced Return Notes
|
|
|
Barrier 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 200%)] = $1,000 + $40.00 = $1,040
|
|
On a $1,000 investment, a 2% Percentage Change results in a Payment at Maturity of $1,040, a 4% 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 200%)] = $1,000 + $700 = $1,700
However, the Maximum Redemption Amount is $1,420. Accordingly, you will receive a payment at maturity equal to $1,420 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 $1,420, a 42% return on the Notes.
|
Example 3 —
|
Calculation of the Payment at Maturity where the Percentage Change is negative (but not by more than the Barrier Percentage).
|
|
Percentage Change:
|
-8%
|
|
Payment at Maturity:
|
At maturity, if the Percentage Change is negative BUT not by more than the Barrier 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 Barrier Percentage).
|
|
Percentage Change:
|
-35%
|
|
Payment at Maturity:
|
$1,000 + ($1,000 x -35%) = $1,000 - $350 = $650
|
|
On a $1,000 investment, a -35% Percentage Change results in a Payment at Maturity of $650, a -35% return on the Notes.
|
|
|
Barrier Enhanced Return Notes
|
Hypothetical Percentage
Change
|
Redemption Amount as
Percentage of Principal Amount
|
Redemption Amount
per $1,000 in Principal
Amount
|
40.00%
|
142.00%
|
$1,420.00
|
30.00%
|
142.00%
|
$1,420.00
|
21.00%
|
142.00%
|
$1,420.00
|
20.00%
|
140.00%
|
$1,400.00
|
10.00%
|
120.00%
|
$1,200.00
|
5.00%
|
110.00%
|
$1,100.00
|
2.00%
|
104.00%
|
$1,040.00
|
0.00%
|
100.00%
|
$1,000.00
|
-5.00%
|
100.00%
|
$1,000.00
|
-10.00%
|
100.00%
|
$1,000.00
|
-20.00%
|
100.00%
|
$1,000.00
|
-25.00%
|
100.00%
|
$1,000.00
|
-25.01%
|
74.99%
|
$749.90
|
-30.00%
|
70.00%
|
$700.00
|
-40.00%
|
60.00%
|
$600.00
|
-50.00%
|
50.00%
|
$500.00
|
-60.00%
|
40.00%
|
$400.00
|
-70.00%
|
30.00%
|
$300.00
|
-80.00%
|
20.00%
|
$200.00
|
-90.00%
|
10.00%
|
$100.00
|
-100.00%
|
0.00%
|
$0.00
|
|
|
Barrier Enhanced Return Notes
|
• |
You May Receive Less Than 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 share price of the Reference Asset. If the Final Level is less than the Barrier Level, you will lose 1% of the principal amount of your Notes for each 1% that the Final Price is less than the Initial Price.
|
• |
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.
|
• |
Owning the Notes Is Not the Same as Owning Shares of the Reference Asset — The return on the Notes may not reflect the return you would realize if you actually owned
shares of the Reference Asset. For instance, as a holder of the Notes, you will not have voting rights, rights to receive cash dividends or other distributions, or any other rights that holders of shares of the Reference Asset would have.
Further, because the payment at maturity will not exceed the Maximum Redemption Amount, 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 Held By 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 held by the Reference Asset would have. The Final Price will not reflect any dividends paid on the securities held by 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
|
|
|
Barrier 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.
|
• |
An Investment in the Notes Is Subject to Risks Associated with the Regional Banking Industry ––The performance of bank stocks may be affected by extensive
governmental regulation, which may limit both the amounts and types of loans and other financial commitments they can make, and the interest rates and fees they can charge and the amount of capital they must maintain. Profitability is
largely dependent on the availability and cost of capital funds, and can fluctuate significantly when interest rates change. Credit losses resulting from financial difficulties of borrowers can negatively impact banking companies. Banks may
also be subject to severe price competition. Competition is high among banking companies and failure to maintain or increase market share may result in lost market value.
|
• |
An Investment in the Notes Is Subject to Risks Associated with the Financial Services Industry –– Changes in the creditworthiness of financial institutions (such as banks
and broker-dealers) may adversely affect the values of instruments of issuers in financial industries. Adverse developments in banking and other financial industries may cause the Reference Asset to underperform relative to other funds that
invest more broadly across
|
|
|
Barrier Enhanced Return Notes
|
• |
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.
|
• |
The Reference Asset Is Subject to Management Risk — The Reference Asset is subject to management risk, which is the risk that the adviser’s investment strategy, the
implementation of which is subject to a number of constraints, may not produce the intended results. For example, the adviser may invest a portion of the Reference Asset's assets in securities not included in the relevant industry or sector
but which the Adviser believes will help the Reference Asset track the relevant industry or sector.
|
• |
Adjustments to the Reference Asset Could Adversely Affect the Notes — SSGA Fund Management, Inc., the adviser of the Reference Asset (the “Adviser”), is responsible for
calculating and maintaining the Reference Asset. The Adviser can add, delete or substitute the stocks comprising the Reference Asset. The Adviser 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.
|
|
|
Barrier Enhanced Return Notes
|
• |
We and Our Affiliates Do Not Have Any Affiliation with the Adviser and Are Not Responsible for its Public Disclosure of Information — We and our affiliates are not
affiliated with Adviser 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 Adviser 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 Adviser 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.
|
• |
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.
|
|
|
Barrier Enhanced Return Notes
|
|
|
Barrier Enhanced Return Notes
|
|
|
Barrier Enhanced Return Notes
|
|
|
Barrier Enhanced Return Notes
|
|
|
Barrier Enhanced Return Notes
|
|
|
Barrier Enhanced Return Notes
|