8-K: Bank of America Transitions to CORRA for CDOR-Linked Debt, Announces Redemption of Certain Securities

Bank of America will replace the Canadian Dollar Offered Rate (CDOR) with the Fallback Rate (CORRA) for certain floating-rate debt securities and intends to redeem a series of fixed-to-floating rate debt securities.

Summary

• Bank of America is transitioning from the Canadian Dollar Offered Rate (CDOR) to the Fallback Rate (CORRA) for certain floating-rate and fixed-to-floating rate debt securities.
• This change is due to the discontinuation of CDOR by Refinitiv Benchmark Services, with the final publication of CDOR scheduled for June 28, 2024.
• The Fallback Rate (CORRA), calculated by Bloomberg Index Services Limited, will be used for interest rate calculations starting after June 28, 2024.
• The transition affects securities listed in Annexes 1 and 2 of the press release, with different fallback provisions applying to each.
• Securities listed in Annex 3, which have non-workable fallback provisions, are intended to be redeemed by Bank of America.
• The Fallback Rate (CORRA) is based on the Canadian Overnight Repo Rate Average (CORRA) compounded in arrears, plus a fixed spread adjustment of 0.32138%.
• The calculation of the Fallback Rate (CORRA) differs from CDOR, as it is determined near the end of the interest period, not at the beginning.

Sentiment

Score: 7

Explanation: The document outlines a necessary transition due to the discontinuation of CDOR, which is handled proactively by Bank of America. While there are some minor negative implications, the overall tone is neutral to slightly positive as the company is addressing the issue in a timely manner.

Positives

• The transition to CORRA provides a clear and established alternative rate for the affected debt securities.
• Bank of America is proactively addressing the discontinuation of CDOR, ensuring continuity for investors.
• The redemption of securities with non-workable fallback provisions provides clarity and avoids potential issues.

Negatives

• The change in rate calculation from a forward-looking rate to an in-arrears rate may require adjustments for investors.
• The redemption of certain securities may require investors to reinvest their funds.

Risks

• The transition to the Fallback Rate (CORRA) may introduce some uncertainty for investors due to the change in calculation methodology.
• There is a risk that the Fallback Rate (CORRA) may not perform exactly as CDOR did, potentially affecting interest payments.
• The redemption of certain securities could lead to reinvestment risk for investors.

Future Outlook

Bank of America expects the transition to the Fallback Rate (CORRA) to be smooth and intends to redeem the affected securities as planned. The company will issue separate notices for the redemption of the securities listed in Annex 3.

Industry Context

The discontinuation of CDOR is part of a broader global trend of transitioning away from interbank offered rates (IBORs) to alternative reference rates. This change aligns with industry-wide efforts to enhance the robustness and reliability of financial benchmarks.

Comparison to Industry Standards

• The transition from CDOR to CORRA is consistent with the recommendations of the Canadian Alternative Reference Rate Working Group (CARR).
• Other financial institutions are also transitioning from IBORs to alternative rates, such as SOFR in the US and SONIA in the UK.
• The use of a compounded in arrears rate like CORRA is becoming a standard practice in the industry for replacing forward-looking rates.

Stakeholder Impact

• Shareholders will be impacted by the transition of the debt securities and the redemption of certain securities.
• Holders of the affected debt securities will need to understand the new rate calculation and potential redemption.
• The transition is not expected to have a significant impact on other stakeholders.

Next Steps

• Bank of America will implement the transition to the Fallback Rate (CORRA) after June 28, 2024.
• The company will issue separate notices for the redemption of the debt securities listed in Annex 3.
• The calculation agent will determine the Fallback Rate (CORRA) for each interest period.

Key Dates

Keywords

CDOR, CORRA, Fallback Rate, Debt Securities, Interest Rate, Bank of America, Redemption, Floating Rate, Fixed-to-Floating Rate, Bloomberg Index Services Limited