What is the Series PP Preferred Stock?

The Series PP Preferred Stock is a new class of non-cumulative preferred stock issued by Bank of America. It has a fixed dividend rate of 4.125% and a liquidation preference of $25,000 per share.

What are Depositary Shares?

Depositary Shares are fractional interests in shares of a foreign or preferred stock. In this case, each Depositary Share represents a 1/1,000th interest in one share of Series PP Preferred Stock, making it easier to trade smaller denominations.

What are the implications of the non-cumulative dividend feature?

A non-cumulative dividend means that if Bank of America fails to declare and pay a dividend on the Series PP Preferred Stock for any given period, that missed dividend is permanently lost to the shareholders and does not accrue. This differs from cumulative preferred stock where missed dividends must be paid before common stock dividends can be issued.

How does the Series PP Preferred Stock affect common stockholders?

The Series PP Preferred Stock has priority over common stock for dividend payments and in case of liquidation. Furthermore, if the company fails to pay its Series PP Preferred dividends, it faces restrictions on paying dividends to or repurchasing its common stock, indicating a strong priority for this preferred security.

BAC 8-K: Shareholder Matters & Corporate Changes

Summary

Bank of America Corporation (BAC) filed an 8-K on January 28, 2021, to report the issuance and sale of 36,600,000 Depositary Shares. Each Depositary Share represents a 1/1,000th interest in a share of the newly established 4.125% Non-Cumulative Preferred Stock, Series PP. This filing primarily concerns the creation and offering of this new class of preferred stock, which has a liquidation preference of $25,000 per share. Key for investors is the terms associated with this Series PP Preferred Stock. Its dividend payments are non-cumulative. Importantly, the ability of Bank of America to pay dividends on, or repurchase, its common stock or other parity or junior preferred stock is restricted if it fails to declare and pay full dividends on the Series PP Preferred Stock. This highlights a prioritization of preferred dividend payments within the company's capital structure.

Key Highlights

1Bank of America issued 36,600,000 Depositary Shares representing interests in its new Series PP Preferred Stock.
2The Series PP Preferred Stock carries a fixed dividend rate of 4.125% and is non-cumulative.
3Each Depositary Share represents a 1/1,000th interest in a share of Series PP Preferred Stock.
4The Series PP Preferred Stock has a liquidation preference of $25,000 per share.
5Failure to pay full dividends on the Series PP Preferred Stock imposes restrictions on the company's ability to pay dividends or repurchase common stock or other parity/junior preferred stock.
6The filing includes the Certificate of Designations which outlines the specific rights and preferences of the Series PP Preferred Stock.
7An Underwriting Agreement and Deposit Agreement related to the offering are included as exhibits.

BANK OF AMERICA CORP /DE/ 8-K Report, Rights Modification (Jan 28, 2021)

Summary

Key Highlights

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