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Subject to Completion
Preliminary Term Sheet dated
September 1, 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 SUN-1 dated December 11, 2020) |
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Per Unit
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Total
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Public offering price(1)
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$10.00
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$
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Underwriting discount(1)
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$0.15
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$
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Proceeds, before expenses, to BofA Finance
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$9.85
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$
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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 $0.10 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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Market-Linked One Look Notes
Linked to the VanEck® Gold Miners ETF, due October , 2023 |
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Market-Linked One Look Notes
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TS-2
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Market-Linked One Look Notes
Linked to the VanEck® Gold Miners ETF, due October , 2023 |
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Product supplement EQUITY SUN-1 dated December 11, 2020:
https://www.sec.gov/Archives/edgar/data/70858/000119312520315983/d27083d424b5.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 Ending Value will not be less than the Starting Value.
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You accept that the return on the notes will be limited to the return represented by the Step Up Payment.
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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 an Ending Value that is below the Starting 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 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, as applicable.
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You believe that the Underlying Fund will decrease from the Starting Value to the Ending Value or that it will increase by more than the return represented by the Step Up Payment.
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You seek an uncapped return on your investment.
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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 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 or 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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Market-Linked One Look Notes
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TS-3
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Market-Linked One Look Notes
Linked to the VanEck® Gold Miners ETF, due October , 2023 |
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Market-Linked One Look Notes
![]() |
This graph reflects the returns on the notes, based on the Threshold Value of 100% of the Starting Value and a hypothetical Step Up Payment of $2.70 per unit (the midpoint of the Step Up Payment range of [$2.40 to $3.00]). 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)(2)
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0.00%
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$12.70(3)
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27.00%
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102.00
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2.00%
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$12.70
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27.00%
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105.00
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5.00%
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$12.70
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27.00%
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110.00
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10.00%
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$12.70
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27.00%
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120.00
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20.00%
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$12.70
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27.00%
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127.00
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27.00%
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$12.70
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27.00%
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140.00
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40.00%
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$12.70
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27.00%
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150.00
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50.00%
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$12.70
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27.00%
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160.00
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60.00%
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$12.70
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27.00%
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165.00
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65.00%
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$12.70
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27.00%
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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 Step Up Payment of $2.70.
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Market-Linked One Look Notes
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TS-4
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Market-Linked One Look Notes
Linked to the VanEck® Gold Miners ETF, due October , 2023 |
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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: 100.00
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Threshold Value: 100.00
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Ending Value: 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: 100.00
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Ending Value: 110.00
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$10.00 + $2.70 = $12.70
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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
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Example 3
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The Ending Value is 140.00, or 140.00% of the Starting Value:
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Starting Value: 100.00
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Ending Value: 140.00
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$10.00 + $2.70 = $12.70
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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.
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Market-Linked One Look Notes
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TS-5
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Market-Linked One Look Notes
Linked to the VanEck® Gold Miners ETF, due October , 2023 |
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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 Step Up Payment 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 beginning on page TS-15. 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, 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 the Underlying Fund or 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.
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Market-Linked One Look Notes
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TS-6
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Market-Linked One Look Notes
Linked to the VanEck® Gold Miners ETF, due October , 2023 |
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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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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 the Notes—Anti-Dilution and Discontinuance Adjustments Relating to Underlying Funds beginning on PS-33 of product supplement EQUITY SUN-1.
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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-42 of the accompanying product supplement.
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Market-Linked One Look Notes
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TS-7
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Market-Linked One Look Notes
Linked to the VanEck® Gold Miners ETF, due October , 2023 |
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Market-Linked One Look Notes
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TS-8
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Market-Linked One Look Notes
Linked to the VanEck® Gold Miners ETF, due October , 2023 |
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Market-Linked One Look Notes
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TS-9
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Market-Linked One Look Notes
Linked to the VanEck® Gold Miners ETF, due October , 2023 |
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Market-Linked One Look Notes
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TS-10
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Market-Linked One Look Notes
Linked to the VanEck® Gold Miners ETF, due October , 2023 |
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1.
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the weight of any single component security may not account for more than 20% of the total value of the Underlying Index;
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2.
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the component securities are split into two subgroups-large and small, which are ranked by unadjusted market capitalization weight in the Underlying Index. Large securities are defined as having a starting index weight greater than or equal to 5%. Small securities are defined as having a starting index weight below 5%; and
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3.
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the final aggregate weight of those component securities which individually represent more than 4.5% of the total value of the Underlying Index may not account for more than 45% of the total index value.
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Market-Linked One Look Notes
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TS-11
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Market-Linked One Look Notes
Linked to the VanEck® Gold Miners ETF, due October , 2023 |
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(1)
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Removal of constituents. Any stock deleted from the Underlying Index as a result of a corporate action such as a merger, acquisition, spin-off, delisting or bankruptcy is typically not replaced with a new constituent. The total number of stocks in the Underlying Index is reduced by one every time a company is deleted. In certain circumstances, IDI may decide to add another constituent into the Underlying Index as a result of the pending removal of a current constituent. If a company is removed from the Underlying Index, the divisor will be adapted to maintain the index level.
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a.
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Mergers and acquisitions. In the event that a merger or acquisition occurs between members of the Underlying Index, the acquired company is deleted and its market capitalization moves to the acquiring company’s stock. In the event that only one of the parties to a merger or acquisition is a member of the Underlying Index, an acquiring member of the Underlying Index continues as a member of the Underlying Index and its shares will be adjusted at the next rebalance while an acquired member of the Underlying Index is removed from the Underlying Index and its market capitalization redistributed proportionately across the remaining constituents via a divisor adjustment, and the acquiring company may be considered for inclusion at the next rebalance.
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b.
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Suspensions and company distress. Immediately upon a company’s filing for bankruptcy, an announcement will be made to remove the constituent from the Underlying Index effective for the next trading day. If the constituent is trading on an over-the-counter market, the last trade or price on that market is utilized as the deletion price on that day. If the stock does not trade on the relevant exchange between the bankruptcy announcement and the current index business day, the stock may be deleted from the Underlying Index with a presumed market value of $0.
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c.
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Split-up / spin-off. The closing price of the index constituent is adjusted by the value of the spin-off and the shares of the index constituent will not be adjusted.
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(2)
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Dividends. The Underlying Index will be adjusted for dividends that are special. To determine whether a dividend should be considered a special dividend, the compiler will use the following criteria: (a) the declaration of a dividend additional to those dividends declared as part of a company’s normal results and dividend reporting cycle; or (b) the identification of an element of a dividend paid in line with a company’s normal results and dividend reporting cycle as an element that is unambiguously additional to the company’s normal payment.
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(3)
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Rights issues and other rights. In the event of a rights issue, the price is adjusted for the value of the right before the open on the ex-date, and the shares are increased to maintain the constituent’s existing weighting within the Underlying Index. The adjustment assumes that the rights issue is fully subscribed. The amount of the price adjustment is determined from the terms of the rights issue, including the subscription price, and the price of the underlying security. IDI shall only enact adjustments if the rights represent a positive value, or are in-the-money, or, alternatively, represent or can be converted into a tangible cash value.
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Market-Linked One Look Notes
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TS-12
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Market-Linked One Look Notes
Linked to the VanEck® Gold Miners ETF, due October , 2023 |
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(4)
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Bonus issues, stock splits and reverse stock splits. For bonus issues, stock splits and reverse stock splits, the number of shares included in the Underlying Index will be adjusted in accordance with the ratio given in the corporate action. Since the event won’t change the value of the company included in the Underlying Index, the divisor will not be changed because of this.
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(5)
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Changes in number of shares. Changes in the number of shares outstanding, typically due to share repurchases, tenders or offerings, will not be reflected in the Underlying Index.
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Market-Linked One Look Notes
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TS-13
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Market-Linked One Look Notes
Linked to the VanEck® Gold Miners ETF, due October , 2023 |
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Market-Linked One Look Notes
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TS-14
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Market-Linked One Look Notes
Linked to the VanEck® Gold Miners ETF, due October , 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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Market-Linked One Look Notes
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TS-15
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Market-Linked One Look Notes
Linked to the VanEck® Gold Miners ETF, due October , 2023 |
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Market-Linked One Look Notes
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TS-16
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Market-Linked One Look Notes
Linked to the VanEck® Gold Miners ETF, due October , 2023 |
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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 an administrative determination, or judicial ruling to the contrary) to characterize and treat the notes for all tax purposes as a callable single financial contract with respect to the Underlying Fund.
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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, exchange, or redemption 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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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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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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Market-Linked One Look Notes
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TS-17
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