8-KOther EventsExhibits & Filings

BANK OF AMERICA CORP /DE/ 8-K Report, Corporate Update (Aug 15, 2016)

Filed August 15, 2016For Securities:BACBAC-PBBAC-PKBAC-PLBAC-PMBAC-PNBAC-PSBML-PJBAC-PEBAC-PPBAC-PQBACRPBML-PGBML-PHBML-PLBAC-POMER-PK

Summary

This 8-K filing from Bank of America Corporation (BAC) on August 15, 2016, primarily details a change related to a "Replacement Capital Covenant." The company has redeemed $114.871 million of its 6.35% Subordinated InterNotes due December 2037. This redemption triggers a change in which series of debt is covered by the Replacement Capital Covenant. Effective August 15, 2016, the redeemed InterNotes are no longer the covered debt. Instead, Bank of America's 4.750% Subordinated Notes due April 2045 will now be the covered debt under the Replacement Capital Covenant. This covenant, originally entered into on February 16, 2007, in connection with a preferred stock issuance by BAC Capital Trust XIV, likely impacts the company's ability to incur certain additional debt or make restricted payments.

Key Highlights

  • 1Bank of America redeemed $114.871 million of its 6.35% Subordinated InterNotes due December 2037.
  • 2The redemption was effective as of August 15, 2016.
  • 3This action triggered a change in the debt series covered by a "Replacement Capital Covenant."
  • 4The 4.750% Subordinated Notes due April 2045 (CUSIP No. 06051GFQ7) are now the covered debt under the covenant.
  • 5The original Replacement Capital Covenant was established on February 16, 2007.
  • 6The covenant is linked to a preferred stock issuance by BAC Capital Trust XIV.

Frequently Asked Questions

A Replacement Capital Covenant is a contractual agreement that Bank of America entered into with bondholders of its preferred stock. It typically restricts the company from incurring certain additional debt or making specific payments unless certain financial conditions are met or the preferred stock is replaced with equivalent capital. The purpose is to protect the investors in the preferred stock.

The filing does not explicitly state the reason for the redemption, but it was triggered by the company's decision to retire the 6.35% Subordinated InterNotes. This action was necessary to comply with the terms of the Replacement Capital Covenant, which required a change in the covered debt series.

This change effectively shifts the restrictions imposed by the Replacement Capital Covenant from one series of subordinated debt to another. The 4.750% Subordinated Notes due April 2045 now fall under the terms of the covenant, while the redeemed notes are no longer subject to it. Investors should review the specific terms of the covenant to understand the precise restrictions on the company.

No, this action is typically a routine financial management activity. Redeeming debt, especially when it's part of a contractual obligation like a Replacement Capital Covenant, is a way for companies to manage their liabilities and capital structure. The fact that they are replacing the covered debt with another series of subordinated notes suggests ongoing capital management rather than distress.