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Subject to Completion
Preliminary Term Sheet dated
May 3, 2022
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Filed Pursuant to Rule 424(b)(2)
Registration Statement No. 333-234425 (To Prospectus dated December 31, 2019, Prospectus Supplement dated December 31, 2019 and Product Supplement EQUITY ARN-1 dated May 20, 2020) |
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Per Unit
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Total
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Public offering price(1)
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$10.000
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$
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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 BofA Finance
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$ 9.825
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$
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(1)
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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; Conflicts of Interest 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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Accelerated Return Notes®
Linked to the VanEck Semiconductor ETF, due July , 2023 |
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Accelerated Return Notes®
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TS-2
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Accelerated Return Notes®
Linked to the VanEck Semiconductor ETF, due July , 2023 |
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■
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Product supplement EQUITY ARN-1 dated May 20, 2020:
https://www.sec.gov/Archives/edgar/data/70858/000119312520147287/d924226d424b5.htm |
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Series A MTN prospectus supplement dated December 31, 2019 and prospectus dated December 31, 2019:
https://www.sec.gov/Archives/edgar/data/70858/000119312519326462/d859470d424b3.htm |
You may wish to consider an investment in the notes if:
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The notes may not be an appropriate investment for you if:
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You anticipate that the Underlying Fund will increase moderately 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 Underlying Fund decreases from the Starting Value to the Ending Value.
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You accept that the return on the notes will be capped.
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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 shares of the Underlying Fund or the securities held by the Underlying Fund.
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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 and BAC’s actual and perceived creditworthiness, BAC’s 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, and BAC’s credit risk, as guarantor of the notes, for all payments under the notes, including the Redemption Amount.
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You believe that the Underlying Fund will decrease from the Starting Value to the Ending Value or that it will not increase sufficiently over the term of the notes to provide you with your desired return.
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You seek principal repayment or preservation of capital.
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You seek an uncapped return on your investment.
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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 shares of the Underlying Fund or the securities held by the Underlying Fund.
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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, to take our credit risk, as issuer of the notes, or to take BAC’s credit risk, as guarantor of the notes.
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Accelerated Return Notes®
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TS-3
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Accelerated Return Notes®
Linked to the VanEck Semiconductor ETF, due July , 2023 |
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Accelerated Return Notes®
![]() |
This graph reflects the returns on the notes, based on the Participation Rate of 300% and a Capped Value of $12.60 per unit (the midpoint of the Capped Value range of [$12.40 to $12.80]). The green line reflects the returns on the notes, while the dotted gray line reflects the returns of a direct investment in the Underlying Fund, excluding dividends.
This graph has been prepared for purposes of illustration only.
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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)
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0.00%
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$10.00
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0.00%
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105.00
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5.00%
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$11.50
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15.00%
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108.67
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8.67%
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$12.60(2)
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26.00%
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110.00
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10.00%
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$12.60
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26.00%
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120.00
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20.00%
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$12.60
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26.00%
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130.00
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30.00%
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$12.60
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26.00%
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140.00
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40.00%
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$12.60
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26.00%
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150.00
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50.00%
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$12.60
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26.00%
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160.00
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60.00%
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$12.60
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26.00%
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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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The Redemption Amount per unit cannot exceed the hypothetical Capped Value.
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Accelerated Return Notes®
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TS-4
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Accelerated Return Notes®
Linked to the VanEck Semiconductor ETF, due July , 2023 |
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Example 1
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The Ending Value is 80.00, or 80.00% of the Starting Value:
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Starting Value: 100.00
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Ending Value: 80.00
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![]() |
= $8.00 Redemption Amount per unit
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Example 2
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The Ending Value is 102.00, or 102.00% of the Starting Value:
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Starting Value: 100.00
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Ending Value: 102.00
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![]() |
= $10.60 Redemption Amount per unit
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Example 3
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The Ending Value is 130.00, or 130.00% of the Starting Value:
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Starting Value: 100.00
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Ending Value: 130.00
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![]() |
= $19.00, however, because the Redemption Amount for the notes cannot exceed the Capped Value, the Redemption Amount will be $12.60 per unit
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Accelerated Return Notes®
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TS-5
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Accelerated Return Notes®
Linked to the VanEck Semiconductor ETF, due July , 2023 |
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■
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Depending on the performance of the Underlying Fund 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 the credit risk of BAC, and any actual or perceived changes in our or BAC’s creditworthiness are expected to affect the value of the notes. If we and BAC become insolvent or are unable to pay our respective obligations, you may lose your entire investment.
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Your investment return is limited to the return represented by the Capped Value and may be less than a comparable investment directly in the Underlying Fund or the securities held by the Underlying Fund.
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We are a finance subsidiary and, as such, have no independent assets, operations or revenues.
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BAC’s obligations under its guarantee of the notes will be structurally subordinated to liabilities of its subsidiaries.
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The notes issued by us will not have the benefit of any cross-default or cross-acceleration with other indebtedness of BofA Finance or BAC; events of bankruptcy or insolvency or resolution proceedings relating to BAC and covenant breach by BAC will not constitute an event of default with respect to the notes.
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The initial estimated value of the notes considers certain assumptions and variables and relies in part on certain forecasts about future events, which may prove to be incorrect. 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 and those of BAC, BAC’s 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 price of the Underlying Fund, changes in BAC’s 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 on page TS-16. 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, BAC, MLPF&S, BofAS or any of our other 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 Underlying Fund, our and BAC’s creditworthiness and changes in market conditions.
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A trading market is not expected to develop for the notes. None of us, BAC, 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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BAC and its affiliates’ hedging and trading activities (including trades in shares of companies included in the Underlying Fund) and any hedging and trading activities BAC or its affiliates engage in that are not for your account or on your behalf, 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 an affiliate of ours. We have the right to appoint and remove the calculation agent.
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The sponsor and investment advisor of the Underlying Fund may adjust the Underlying Fund in a way that could adversely impact the value of the notes and the amount payable on the notes, and these entities have no obligation to consider your interests.
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The sponsor of the Underlying Fund’s underlying index (the Underlying Index) may adjust the Underlying Index in a way that affects its level, and has no obligation to consider your interests. You will have no rights of a holder of the Underlying Fund or the securities held by the Underlying Fund, and you will not be entitled to receive securities or dividends or other distributions by the issuers of those securities.
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Accelerated Return Notes®
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TS-6
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Accelerated Return Notes®
Linked to the VanEck Semiconductor ETF, due July , 2023 |
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While BAC and our other affiliates may from time to time own securities of companies included in the Underlying Fund, we, BAC and our other affiliates do not control any company included in the Underlying Fund, and have not verified any disclosure made by any other company.
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There are liquidity and management risks associated with the Underlying Fund.
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The performance of the Underlying Fund may not correlate with the performance of its Underlying Index as well as the net asset value per share of the Underlying Fund, especially during periods of market volatility when the liquidity and the market price of shares of the Underlying Fund and/or securities held by the Underlying Fund may be adversely affected, sometimes materially.
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Risks associated with the Underlying Index or the underlying assets of the Underlying Fund will affect the share price of the Underlying Fund and hence, the value of the notes.
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The payments on the notes will not be adjusted for all corporate events that could affect the Underlying Fund. See Description of ARNs—Anti-Dilution and Discontinuance Adjustments Relating to Underlying Funds beginning on page PS-29 of the accompanying product supplement.
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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 Tax Consequences below and U.S. Federal Income Tax Summary beginning on page PS-38 of the accompanying product supplement.
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Accelerated Return Notes®
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TS-7
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Accelerated Return Notes®
Linked to the VanEck Semiconductor ETF, due July , 2023 |
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Accelerated Return Notes®
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TS-8
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Accelerated Return Notes®
Linked to the VanEck Semiconductor ETF, due July , 2023 |
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a full market capitalization exceeding US$150 million;
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●
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a three-month average-daily-trading volume of at least US$1 million at the current review and also at the previous two reviews; and
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at least 250,000 shares traded per month over the last six months at the current review and also at the previous two reviews.
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a full market capitalization exceeding US$75 million; and
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a three-month average-daily-trading volume of at least US$0.2 million in at least two of the latest three quarters (current review and also at previous two reviews)
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In addition, a three-month average-daily-trading volume of at least US$0.6 million at current review or at one of the previous two reviews; or
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at least 200,000 shares traded per month over the last six months at the current review or at one of the previous two reviews.
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exceeds the free-float market capitalization of a share line of the same company which is an index component by at least 25%; and
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fulfills all size and liquidity eligibility criteria for non-components,
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the current component share line will be replaced by the larger one. MVIS can, in exceptional cases (e.g., significantly higher liquidity), decide to keep the current share line instead.
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(1)
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The largest 50 stocks (by full market capitalization) from the investable universe qualify.
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(2)
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The 50 stocks are ranked in two different ways — by free-float market capitalization in descending order (the largest company receives rank 1) and then by three-month average-daily-trading volume in descending order (the most liquid company receives rank 1). These two ranks are added up.
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(3)
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The 50 stocks are then ranked by the sum of their two ranks in Step 2 in ascending order. If two companies have the same sum of ranks, the larger company is placed on top.
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a.
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Initially, the highest ranked 25 companies made up the MVSMH.
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b.
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On-going, a 10-40 buffer is applied: the highest ranked 10 companies qualify. The remaining 15 companies are selected from the highest ranked remaining current MVSMH components ranked between 11 and 40. If the number of selected companies is still below 25, then the highest ranked remaining stocks are selected until 25 companies have been selected.
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Accelerated Return Notes®
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TS-9
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Accelerated Return Notes®
Linked to the VanEck Semiconductor ETF, due July , 2023 |
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●
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the IPO must have a full market capitalization exceeding US$150 million;
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the IPO must have a free-float factor of at least 10%;
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the IPO must have an average-daily-trading volume of at least US$1 million; and
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the IPO must have traded at least 250,000 shares per month (or per 22 days).
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Accelerated Return Notes®
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TS-10
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Accelerated Return Notes®
Linked to the VanEck Semiconductor ETF, due July , 2023 |
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·
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pi = stock price (rounded to four decimal places);
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·
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qi = number of shares;
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·
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ffi = free-float factor (rounded to two decimal places);
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·
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fxi = exchange rate (local currency to U.S. Dollar) (rounded to 12 decimal places);
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·
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cfi = sector-weighting cap factor (if applicable, otherwise set to 1) (rounded to 16 decimal places);
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·
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M = free-float market capitalization of the Semiconductor Index; and
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·
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D = divisor (rounded to six decimal places).
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(1)
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All MVSMH components are weighted by their free-float market capitalization.
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(2)
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All companies exceeding 4.5% but at least the largest five and at the maximum the largest 10 companies are grouped together (so called Large-Weights). All other companies are grouped together as well (so called Small-Weights).
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(3)
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The aggregated weighting of the Large-Weights is capped at 50%:
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a.
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Large-Weights: If the aggregated weighting of all companies in Large-Weight exceeds 50%, then a capping factor is calculated to bring the weighting down to 50%; at the same time, a second capping factor for the Small-Weights is calculated to increase the aggregated weight to 50%. These two factors are then applied to all companies in the Large-Weights or the Small-Weights respectively.
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b.
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Large-Weights: The maximum weight for any single stock is 20% and the minimum weighting is 5%. If a stock is above the maximum or below the minimum weight, then the weight will be reduced to the maximum weight or increased to the minimum weight and the excess weight will be re-distributed proportionally across all other remaining Semiconductor Index constituents in the Large-Weights.
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c.
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Small-Weights: The maximum weight for any single stock is 4.5%. If a stock is above the maximum weight, then the weight will be reduced to the maximum weight and the excess weight will be re-distributed proportionally
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Accelerated Return Notes®
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TS-11
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Accelerated Return Notes®
Linked to the VanEck Semiconductor ETF, due July , 2023 |
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Special cash dividend
p
i, adjusted
= pi (Dividend x (1 Withholding Tax))
Split
Shareholders receive B new shares for every A share held.
![]() ![]() Rights offering
Shareholders receive B new shares for every A share held.
If the subscription-price is either not available or not smaller than the closing price, then no adjustment will be done.
![]() ![]() |
Divisor change: Yes
Divisor change: No
Divisor change: No
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Accelerated Return Notes®
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TS-12
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Accelerated Return Notes®
Linked to the VanEck Semiconductor ETF, due July , 2023 |
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Stock dividend Divisor change: No
Shareholders receive B new shares for every A share held.
![]() ![]() |
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Stock dividend from treasury Divisor change: Yes
Stock dividends from treasury are adjusted as ordinary cash dividends. Shareholders receive ‘B’ new shares for every ‘A’ share held.
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Stock dividend of a different company security Divisor change: Yes
Shareholders receive B shares of a different company for every A share held.
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Spin-offs Divisor change: Yes
Shareholders receive B new shares for every A share held.
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Addition/deletion of a company Divisor change: Yes
Net change in market value determines the divisor adjustment.
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Changes in shares outstanding/free-float Divisor change: Yes
Any secondary issuance, share repurchase, buy back, tender offer, Dutch auction, exchange offer, bought deal equity offering or prospectus offering will be updated at the semi-annual review if the change is smaller than 10%. Changes larger than 10% will be pre-announced (3 trading days’ notice) and implemented on a best efforts basis. If necessary and information is available, resulting float changes are taken into consideration. Share changes will not be implemented in the week between review announcement and implementation.
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Changes due to a merger/takeover/spin-off Divisor change: Yes
Net change in free-float market value determines the divisor adjustment. In case of no change, the divisor change is 0.
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Accelerated Return Notes®
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TS-13
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Accelerated Return Notes®
Linked to the VanEck Semiconductor ETF, due July , 2023 |
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Accelerated Return Notes®
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TS-14
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Accelerated Return Notes®
Linked to the VanEck Semiconductor ETF, due July , 2023 |
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●
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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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Accelerated Return Notes®
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TS-15
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Accelerated Return Notes®
Linked to the VanEck Semiconductor ETF, due July , 2023 |
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Accelerated Return Notes®
|
TS-16
|
Accelerated Return Notes®
Linked to the VanEck Semiconductor ETF, due July , 2023 |
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■
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There is no statutory, judicial, or administrative authority directly addressing the characterization of the notes.
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■
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You agree with us (in the absence of an administrative determination, or judicial ruling to the contrary) to characterize and treat the notes for all tax purposes as a single financial contract with respect to the Underlying Fund.
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■
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Under this characterization and tax treatment of the notes, a U.S. Holder (as defined beginning on page 38 of the prospectus) generally will recognize capital gain or loss upon maturity or upon a sale or exchange of the notes prior to maturity. 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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■
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No assurance can be given that the Internal Revenue Service (IRS) or any court will agree with this characterization and tax treatment.
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■
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Under current IRS 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.
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Accelerated Return Notes®
|
TS-17
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