Subject to Completion
Preliminary Term Sheet dated March 31, 2023
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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 INDICES SUN-1 dated
March 31, 2023)
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Units
$10 principal amount per unit CUSIP No. |
Pricing Date* Settlement Date* Maturity Date* |
April , 2023
May , 2023 June , 2024 |
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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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Market-Linked Step Up Notes Linked to
the EURO STOXX 50®
Index
◾
Maturity of approximately 14 months
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If the Index is flat or increases up to the Step Up Value, a return of [11.00% to 17.00%]
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If the Index increases above the Step Up Value, a return equal to the percentage increase in the Index
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1-to-1 downside exposure to decreases in the Index, with up to 100% of your principal at risk
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All payments occur at maturity and are subject to the credit risk of Royal Bank of Canada
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No periodic interest payments
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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”
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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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$10.00
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$
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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 $9.95
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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Market-Linked Step Up Notes
Linked to the EURO STOXX 50® Index, due June , 2024 |
Terms of the Notes
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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 EURO STOXX 50® Index (Bloomberg symbol: “SX5E”), 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 closing level of the Market Measure on the scheduled calculation day. The calculation day is subject to postponement in the event of Market Disruption Events, as
described beginning on page PS-20 of product supplement EQUITY INDICES SUN-1.
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Step Up Value:
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[111.00% to 117.00%] of the Starting Value. The actual Step Up Value will be determined on the pricing date.
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Step Up
Payment:
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[$1.10 to $1.70] per unit, which represents a return of [11.00% to 17.00%] over the principal amount. The actual Step Up Payment will be determined on the pricing date.
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Threshold Value:
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100% of the Starting Value.
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Calculation Day:
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Approximately the fifth scheduled Market Measure Business Day immediately preceding 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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Redemption Amount Determination
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On the maturity date, you will receive a cash payment per unit determined as follows:
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Market-Linked Step Up Notes
Linked to the EURO STOXX 50® Index, due June , 2024 |
◾ |
Product supplement EQUITY INDICES SUN-1 dated March 31, 2023:
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Series I MTN prospectus supplement dated September 14, 2021:
https://www.sec.gov/Archives/edgar/data/1000275/000121465921009472/rbcsupp911210424b3.htm |
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Prospectus dated September 14, 2021:
https://www.sec.gov/Archives/edgar/data/1000275/000121465921009470/rbc911212424b3.htm |
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You anticipate that the Index will increase 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 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.
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You seek principal repayment or preservation of capital.
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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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Market-Linked Step Up Notes
Linked to the EURO STOXX 50® Index, due June , 2024 |
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)(2)
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0.00%
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$11.40(3)
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14.00%
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102.00
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2.00%
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$11.40
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14.00%
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105.00
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5.00%
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$11.40
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14.00%
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110.00
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10.00%
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$11.40
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14.00%
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114.00(4)
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14.00%
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$11.40
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14.00%
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120.00
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20.00%
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$12.00
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20.00%
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130.00
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30.00%
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$13.00
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30.00%
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140.00
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40.00%
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$14.00
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40.00%
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150.00
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50.00%
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$15.00
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50.00%
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154.00
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54.00%
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$15.40
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54.00%
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160.00
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60.00%
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$16.00
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60.00%
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(1)
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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)
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This is the hypothetical Threshold Value.
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(3)
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This amount represents the sum of the principal amount and the hypothetical Step Up Payment of $1.40.
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(4)
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This is the hypothetical Step Up Value.
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Market-Linked Step Up Notes
Linked to the EURO STOXX 50® Index, due June , 2024 |
Example 1
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The Ending Value is 90.00, or 90.00% of the Starting Value:
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Starting Value:
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100.00
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Threshold Value:
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100.00
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Ending Value:
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90.00
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Redemption Amount per unit
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Example 2
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The Ending Value is 110.00, or 110.00% of the Starting Value:
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Starting Value:
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100.00
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Step Up Value:
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114.00
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Ending Value:
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110.00
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Redemption Amount per unit, the principal amount plus the Step Up Payment, since the Ending Value is equal to or greater than the Starting Value, but less than the Step Up Value.
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Example 3
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The Ending Value is 132.00, or 132.00% of the Starting Value:
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Starting Value:
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100.00
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Step Up Value:
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114.00
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Ending Value:
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132.00
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Redemption Amount per unit
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Market-Linked Step Up Notes
Linked to the EURO STOXX 50® Index, due June , 2024 |
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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 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, BofAS, MLPF&S or our respective affiliates may from time to time own securities of companies included in the Index, we, BofAS, MLPF&S 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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Your return on the notes may be affected by factors affecting the international securities markets, specifically changes within the Eurozone. The Eurozone is and has been undergoing severe financial stress, and the political, legal and
regulatory ramifications are impossible to predict. Changes within the Eurozone could adversely affect the performance of the Index and, consequently, the value of the notes. In addition, you will not obtain the benefit of any increase in the
value of the euro against the U.S. dollar, which you would have received if you had owned the securities in the Index during the term of your notes, although the level of the Index may be adversely affected by general exchange rate movements
in the market.
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Market-Linked Step Up Notes
Linked to the EURO STOXX 50® Index, due June , 2024 |
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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” in product supplement
EQUITY INDICES SUN-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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Market-Linked Step Up Notes
Linked to the EURO STOXX 50® Index, due June , 2024 |
Index =
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Free float market capitalization of the Index
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Adjusted base date market capitalization of the Index
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Market-Linked Step Up Notes
Linked to the EURO STOXX 50® Index, due June , 2024 |
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sponsor, endorse, sell or promote the notes;
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recommend that any person invest in the notes or any other financial products;
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have any responsibility or liability for or make any decisions about the timing, amount or pricing of the notes;
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have any responsibility or liability for the administration, management or marketing of the notes; or
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consider the needs of the notes or the owners of the notes in determining, composing or calculating the Index or have any obligation to do so.
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the results to be obtained by the notes, the owner of the notes or any other person in connection with the use of the Index and the data included in the Index;
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the accuracy or completeness of the Index or its data;
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the merchantability and the fitness for a particular purpose or use of the Index or its data;
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any errors, omissions or interruptions in the Index or its data; and
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any lost profits or indirect, punitive, special or consequential damages or losses, even if STOXX knows that they might occur.
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Market-Linked Step Up Notes
Linked to the EURO STOXX 50® Index, due June , 2024 |
• |
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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Market-Linked Step Up Notes
Linked to the EURO STOXX 50® Index, due June , 2024 |
Market-Linked Step Up Notes
Linked to the EURO STOXX 50® Index, due June , 2024 |
◾ |
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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Under current Internal Revenue Service guidance, withholding on “dividend equivalent” payments (as discussed in the product supplement), if any, will not apply to notes that are issued as of the date of this term sheet unless such notes
are “delta-one” instruments. The discussion in the accompanying product supplement is modified to reflect Internal Revenue Service guidance, which states that the U.S. Treasury Department and the Internal Revenue Service intend to amend the
effective dates of the U.S. Treasury Department regulations to provide that withholding on dividend equivalent payments will not apply to specified equity-linked instruments that are not delta-one instruments and that are issued before
January 1, 2025.
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Market-Linked Step Up Notes
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TS-12
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