Bank of America Corporation Announces Fallback Rate (CORRA) as Substitute Base Rate for Certain Outstanding Debt Securities Linked to the Canadian dollar Bankers' Acceptance Rate (CDOR) After June 28, 2024
Bank of America (BAC) has announced a change in the base rate for certain debt securities linked to the Canadian Dollar Bankers' Acceptance Rate (CDOR). Following the cessation of CDOR on June 28, 2024, the Fallback Rate (CORRA) will replace CDOR for these securities. The change affects floating rate interest payments starting after the CDOR Replacement Date. Additionally, BAC plans to redeem some securities before the floating rate period begins, as outlined in Annex 3 of the press release. CORRA, recommended by the Canadian Alternative Reference Rate Working Group, will be calculated by Bloomberg Index Services and includes a fixed spread adjustment of 0.32138%.
This transition aims to ensure smooth and continuous interest determination for impacted debt securities, aligning with market practices. The press release details three categories of affected securities, each with specific fallback provisions or redemption plans.
- Transition ensures continuous interest determination for affected debt securities.
- Adoption of CORRA aligns with market practices and recommendations by CARR.
- Potential uncertainty for investors holding Annex 3 securities due to redemption plans.
- Complexity in the transition process and differences in timing and manner of rate determination.
Insights
The announcement by Bank of America Corporation regarding the substitution of the Three-Month CDOR with the Three-Month Fallback Rate (CORRA) is a significant change in the interest rate benchmark for its debt securities. This shift is primarily due to the discontinuation of CDOR after June 28, 2024, as announced earlier by Refinitiv Benchmark Services (UK) Limited. The transition to CORRA, a rate recommended by the Canadian Alternative Reference Rate Working Group (CARR), aligns with the broader global movement to replace traditional interbank offered rates with more risk-free rates.
Short-Term Implications:
In the short term, the transition is expected to introduce some volatility in interest rate calculations for the affected securities. Investors holding these debt instruments should be prepared for potential fluctuations in interest income due to the different methodologies used in calculating CDOR and CORRA. The fixed spread adjustment of 0.32138% added to CORRA aims to minimize this impact, but some discrepancies may still occur.
Long-Term Implications:
From a long-term perspective, investors can expect a more stable and transparent rate environment with CORRA, which is considered a more reliable proxy for risk-free interest rates. This change could also influence the pricing of new debt issuances by the bank, potentially affecting yield curves and overall funding costs.
Overall, this transition is in line with industry norms and regulatory recommendations, ensuring compliance and reducing systemic risks associated with outdated benchmarks like CDOR.
The replacement of Three-Month CDOR with CORRA for Bank of America's CDOR Securities also reflects a broader trend within financial markets towards more robust and reliable benchmark rates. CORRA, being based on overnight repo transactions, provides a more accurate reflection of the current market conditions compared to CDOR, which could be subject to manipulation or less market liquidity.
Market Acceptance:
The market's acceptance of CORRA as a fallback rate is critical. Given its endorsement by CARR and adoption by major financial institutions, CORRA is likely to gain widespread acceptance. This shift, however, requires investors to understand the new rate's mechanics, including its calculation method and impact on interest payments.
Investor Sentiment:
For retail investors, this transition might initially seem complex, but it generally aligns with investor interests in transparency and stability. The redemption of Annex 3 CDOR Securities by BAC mitigates potential issues arising from non-workable fallback provisions, thereby protecting investor interests.
As the market adjusts to CORRA, investors can expect a smoother transition and potentially less volatility in interest payments, fostering a more predictable investment environment.
BAC is announcing that, on the first
In addition, BAC is announcing that it intends to redeem the CDOR Securities listed in Annex 3 to this press release in accordance with their terms prior to the commencement of the floating rate period for such CDOR Securities. This press release does not constitute a notice of redemption of the CDOR Securities listed in Annex 3, and any such notice of redemption will be issued separately in accordance with the terms of the CDOR Securities listed in Annex 3 and the applicable indenture. See "CDOR Securities—CDOR Securities with Non-Workable Fallback Provisions" below.
CDOR Securities
Each CDOR Security listed in Annexes 1, 2 and 3 to this press release falls into one of the three categories described below.
CDOR Securities with Alternative Rate Determined by Calculation Agent
The series of CDOR Securities listed in Annex 1 to this press release (the "Annex 1 CDOR Securities") contain fallback provisions for Three-Month CDOR directing Merrill Lynch Canada Inc. ("ML Canada"), as calculation agent for each series of Annex 1 CDOR Securities, to use as a substitute for Three-Month CDOR if such rate has been permanently or indefinitely discontinued, the alternative reference rate selected or recommended by the central bank, monetary authority, relevant regulatory supervisor or any similar institution (including any committee or working group thereof) that is consistent with accepted market practice for debt obligations such as the Annex 1 CDOR Securities (such rate, the "Alternative Rate"). For each series of the Annex 1 CDOR Securities, ML Canada has determined that it will use Three-Month Fallback Rate (CORRA) as the Alternative Rate on and after the CDOR Replacement Date.
CDOR Securities Containing
The series of CDOR Securities listed in Annex 2 to this press release (the "Annex 2 CDOR Securities") contain fallback provisions for Three-Month CDOR substantially in the form recommended by the Canadian Alternative Reference Rate Working Group ("
CDOR Securities with Non-Workable Contractual Fallback Provisions
The single series of CDOR Securities listed in Annex 3 to this press release (the "Annex 3 CDOR Securities") contains fallback provisions for Three-Month CDOR that provide solely for (i) use of an alternative page to obtain Three-Month CDOR and (ii) inquiries for quotes from banks for Canadian dollar bankers' acceptances. It is expected that, following the CDOR Replacement Date, such fallback provisions would not be effective in providing a base rate for the Annex 3 CDOR Securities. As a result, BAC intends to redeem the Annex 3 CDOR Securities in accordance with their terms prior to the commencement of the floating rate period. This press release does not constitute a notice of redemption of the Annex 3 CDOR Securities, and any such notice will be issued separately in accordance with the terms and provisions of the Annex 3 CDOR Securities and the governing indenture.
Three-Month Fallback Rate (CORRA)
Fallback Rate (CORRA) is the
Three-Month CDOR is a forward-looking term rate determined by the calculation agent at the beginning of each applicable floating rate interest period for the CDOR Securities. Because Three-Month Fallback Rate (CORRA) represents daily CORRA compounded in arrears, unlike Three-Month CDOR, Three-Month Fallback Rate (CORRA) can be determined only near the end of each applicable interest period for the CDOR Securities. For a description of how the calculation agent will determine Three-Month Fallback Rate (CORRA) for each floating rate interest period for the CDOR Securities commencing on or after the CDOR Replacement Date, please refer to Annex 4.
Adjustments to Other Terms and Provisions of the CDOR Securities
Under the terms of the CDOR Securities, ML Canada, as calculation agent, or BAC, as issuer, has the right to make certain adjustments to the terms of the CDOR Securities in connection with the substitution of Three-Month Fallback Rate (CORRA) for Three-Month CDOR as the base rate for the CDOR Securities. See Annex 5 for a description of such adjustments that ML Canada and BAC, as applicable, have determined will be applicable for the Annex 1 CDOR Securities and Annex 2 CDOR Securities, respectively.
Forward-Looking Statements
Certain statements contained in this press release may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements made in this press release include, without limitation, statements concerning the expected transition of the base rate for the CDOR Securities to Three-Month Fallback Rate (CORRA), and the Corporation's intention to redeem the CDOR Securities listed in Annex 3. These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumptions that are difficult to predict or beyond our control. You should not place undue reliance on any forward-looking statement and should consider the uncertainties with respect to such transition and resulting risks that such transition would not occur, and including those discussed under Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2023, and in any of our subsequent Securities and Exchange Commission filings. Forward-looking statements speak only as of the date they are made, and except as required by the
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Investors May Contact:
Lee McEntire, Bank of America
Phone: 1.980.388.6780
lee.mcentire@bofa.com
Jonathan Blum, Bank of America (Fixed Income)
Phone: 1.212.449.3112
jonathan.blum@bofa.com
Reporters May Contact:
Bill Halldin, Bank of America
Phone: 1.916.724.0093
william.halldin@bofa.com
ANNEX 1
Calculation Agent Determination | ||
CUSIP No. | Issue Date | Title of Security |
060505FS8 | 3/24/20 | |
060505FU3 | 3/25/21 | |
060505FZ2 | 6/15/21 | |
060505FY5 | 6/15/21 | Floating Rate Senior Notes, due September 2027 |
ANNEX 2
| ||
CUSIP No. | Issue Date | Title of Security |
060505GF5 | 3/16/221 | |
060505GE8 | 3/16/22 | Floating Rate Senior Notes, due March 2026 |
ANNEX 3
Non-Workable Contractual Fallback Provisions | ||
CUSIP No. | Issue Date | Title of Security |
060505FG4 | 9/20/17 | |
ANNEX 4
Calculation Agent's Determination of Three-Month Fallback Rate (CORRA)
For each series of CDOR Securities, for each floating rate interest period commencing on or after the CDOR Replacement Date, ML Canada will determine the applicable interest rate as if references to Three-Month CDOR in the terms and provisions of each series of such CDOR Securities were references to Three-Month Fallback Rate (CORRA), as provided by BISL on the Fallback Rate (CORRA) Screen (as defined below), for the Original IBOR Rate Record Day (as defined below) that corresponds to the applicable interest determination date for such floating rate interest period, as most recently provided or published as at 11:30 a.m.,
For purposes of the foregoing description of the determination of Three-Month Fallback Rate (CORRA):
- "Fallback Observation Day" means, in respect of an interest determination date and the interest period to which such interest determination date relates, the day that is two business days (as defined in the terms and provisions of the applicable series of CDOR Securities) preceding the related interest payment date for such interest period;
- "Fallback Rate (CORRA) Screen" means the Bloomberg Screen corresponding to the Bloomberg ticker for the fallback for CDOR for a relevant interest period accessed via the Bloomberg Screen <FBAK> <GO> Page (or, if applicable, accessed via the Bloomberg Screen <HP><GO>) or any other published source designated by BISL (or a successor provider as approved and/or appointed by ISDA from time to time); and
- References to an "Original IBOR Rate Record Day" are to that term as used on the Fallback Rate (CORRA) Screen.
ANNEX 5
Adjustments to Other Terms and Provisions of the CDOR Securities
Adjustments for Annex 1 CDOR Securities
The following adjustments will be applicable to the terms and provisions of the Annex 1 CDOR Securities for each floating rate interest period commencing on or after the CDOR Replacement Date:
- The calculation agent will not refer to the interest determination date when determining the applicable interest rate for a series of Annex 1 CDOR Securities for a particular interest period. Instead, the calculation agent will refer to the applicable Fallback Observation Day, in accordance with the description set forth in Annex 4.
- The calculation date for each floating rate interest period will be the Fallback Observation Day for the applicable interest period.
- The calculation agent will provide BAC, as issuer, and, upon request, the holder of any Annex 1 CDOR Securities, Three-Month Fallback Rate (CORRA), the interest rate and the amount of interest accrued with respect to any interest period for such CDOR Security, after Three-Month Fallback Rate (CORRA) and such interest rate and accrued interest have been determined.
- Upon the occurrence of a Fallback Index Cessation Event with respect to Three-Month Fallback Rate (CORRA), the rate for an interest reset date which relates to a relevant interest period in respect of which the Fallback Observation Day occurs on or after the Fallback Index Cessation Effective Date will be Compounded CORRA based on the Canadian Overnight Repo Rate Average ("CORRA") administered by the Bank of
Canada (or any successor administrator), plus a fixed spread adjustment of0.32138% 2, where:- "Bloomberg IBOR Fallback Rate Adjustments Rule Book" means the IBOR Fallback Rate Adjustments Rule Book published by Bloomberg Index Services Limited (or a successor provider as approved and/or appointed by ISDA from time to time), as updated from time to time in accordance with its terms;
- "Compounded CORRA" means term-adjusted CORRA compounded-in-arrears, calculated by the calculation agent in accordance with the methodology pursuant to which BISL (or a successor provider as approved and/or appointed by ISDA from time to time) calculated Three-Month Fallback Rate (CORRA), by reference to the Bloomberg IBOR Fallback Rate Adjustments Rule Book. For the avoidance of doubt, Compounded CORRA does not include the fixed spread adjustment of
0.32138% . - "Fallback Index Cessation Effective Date" means, in respect of a Fallback Index Cessation Event, the first date on which Three-Month Fallback Rate (CORRA) is no longer provided. If Three-Month Fallback Rate (CORRA) ceases to be provided on a Fallback Observation Day in respect of an interest period but it was provided at the time at which it is to be observed on such Fallback Observation Day, then the Fallback Index Cessation Effective Date will be the next day on which the rate would ordinarily have been published; and
- "Fallback Index Cessation Event" means: (a) a public statement or publication of information by or on behalf of the administrator or provider of Three-Month Fallback Rate (CORRA) announcing that it has ceased or will cease to provide Three-Month Fallback Rate (CORRA) permanently or indefinitely, provided that, at the time of the statement or publication, there is no successor administrator or provider that will continue to provide Three-Month Fallback Rate (CORRA) or (b) a public statement or publication of information by the regulatory supervisor for the administrator of Three-Month Fallback Rate (CORRA), the Bank of
Canada , an insolvency official with jurisdiction over the administrator for Three-Month Fallback Rate (CORRA), a resolution authority with jurisdiction over the administrator for Three-Month Fallback Rate (CORRA) or a court or an entity with similar insolvency or resolution authority over the administrator for Three-Month Fallback Rate (CORRA), which states that the administrator of Three-Month Fallback Rate (CORRA) has ceased or will cease to provide Three-Month Fallback Rate (CORRA) permanently or indefinitely, provided that, at the time of the statement or publication, there is no successor administrator that will continue to provide Three-Month Fallback Rate (CORRA).
In addition to the adjustments set forth above, the provisions regarding the determination of interest rates and Three-Month Fallback Rate (CORRA) set forth in Annex 4 represent adjustments to the terms and provisions of to the Annex 1 CDOR Securities.
Adjustments to Terms and Provisions of Annex 2 CDOR Securities
The following adjustments will be applicable to the terms and provisions of the Annex 2 CDOR Securities for each floating rate interest period commencing on or after the CDOR Replacement Date:
- The calculation agent will not refer to the interest determination date when determining the applicable interest rate for a series of the Annex 2 CDOR Securities for a particular interest period. Instead, the calculation agent will refer to the applicable Fallback Observation Day, in accordance with the description set forth in Annex 4.
- The calculation date for each floating rate interest period will be the Fallback Observation Day for the applicable interest period.
- The calculation agent will provide BAC, as issuer, and, upon request, the holder of any Annex 2 CDOR Securities, Three-Month Fallback Rate (CORRA), the interest rate and the amount of interest accrued with respect to any interest period for such CDOR Security, after Three-Month Fallback Rate (CORRA) and such interest rate and accrued interest have been determined.
1 Issue Date of 3/28/2022 for additional notes issued in a reopening of this series.
2
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SOURCE Bank of America Corporation
FAQ
What base rate will replace CDOR for BAC's debt securities after June 28, 2024?
When will BAC implement the new base rate for CDOR-linked securities?
Why is BAC replacing CDOR with CORRA for its debt securities?
What is the fixed spread adjustment for Three-Month Fallback Rate (CORRA)?
What will happen to the CDOR securities listed in Annex 3 of BAC's press release?
