SEC Company Response from BANK OF AMERICA (BAC) — Apr 26, 2012
BANK OF AMERICA CORP /DE/ (BAC, BAC-PB, BAC-PE, BAC-PK, BAC-PL, BAC-PM, BAC-PN, BAC-PO, BAC-PP, BAC-PQ, BAC-PS, BML-PG, BML-PL) (CIK 0000070858)
Date: April 26, 2012 · CIK: 0000070858 · Accession: 0000070858-12-000187
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 333-158663, 333-180488
Referenced dates: April 12, 2012
Letter
Via EDGAR Office of Capital Markets Trends Division of Corporation Finance Bank of America Corporation 424 Prospectuses relating to Registration Statements on Form S-3ASR Filed April 20, 2009 -- File No. 333-158663 Filed March 30, 2012 - File No. 333-180488
Dear Ms. Starr:
Bank of America Corporation (the “Corporation”) has received your letter dated April 12, 2012 (the “Comment Letter”) setting forth the comments of the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “SEC”) with respect to the Corporation's offerings of structured notes pursuant to the Corporation's Registration Statements on Form S-3ASR (Registration Nos. 333-158663 and 333-180488). The Corporation's responses to the Comment Letter are set forth below. For ease of reference, each of the Staff's comments is repeated below, followed by the Corporation's response.
The Corporation issues its U.S. registered MTN structured notes through its broker-dealer affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), which offers the notes through different internal divisions to different types of investors. Where appropriate in this letter, we discuss the significant differences between the manner in which structured notes are offered through these divisions. The Corporation internally identifies these divisions as follows:
Ms. Amy M. Starr
April 26, 2012
Page 2
Division
Types of Structured Notes
Aggregate Principal Amount of U.S. Registered Offerings Sold in 2011
Global Wealth and Investment Management division (“GWIM”) (the private wealth group, focused on private client investors)
Cash settled notes offered directly to MLPF&S's wealth management clients, linked primarily to well-known indices, and to equities, commodities, currencies and interest rates.
$4.76 billion
Global Markets division (“Global Markets”)
Structured notes linked primarily to well-known indices, and to equities, commodities and interest rates that are offered directly to institutional investors.
Structured notes linked primarily to well-known indices, and to equities and interest rates that are sold to unaffiliated brokers selected by MLPF&S (“third-party distribution” or “3PD”).
$172.9 million
$914.5 million
Product Names
1.
The staff in the Division of Corporation Finance has previously indicated that note titles using the term “principal protected” should also include balanced information about limitations to the principal protection feature. We believe this concern regarding potential confusion over the titles of securities may exist for note titles across various product categories. Issuers should evaluate the titles used for their different types of structured notes and should revise to clearly describe the product in a balanced manner and avoid titles that stress positive features without also identifying limiting or negative features.
Response:
The Corporation notes that currently it does not offer any type of structured note under its U.S. registered MTN structured note program that uses the term “principal protected” (or similar terms) in its title.
A significant portion of the Corporation's current structured note offerings that are sold through GWIM have specific branded titles. The offering materials used by the Corporation for these (and all other) structured notes include prominent (and proximate) disclosures of the key risks associated with the notes, including on the cover page. For example, in the case of an “Accelerated Return Note” (“ARN”), which can provide investors with a positive return that is greater than the increase in the level of the reference asset, the Corporation's disclosures indicate prominently on the cover page that the notes involve a payment at maturity that is capped, and that may be significantly less than the principal amount.
The structured notes that have branded titles consist primarily of structures that are offered through GWIM on a repeat basis each month. The recurring nature of these offerings allows investors to become familiar with the format for the different products, including the location in the offering documents of disclosures related to the unique terms and risk factors associated with each one.
Ms. Amy M. Starr
April 26, 2012
Page 3
Product Pricing and Value
2.
We note that issuers of structured notes often include disclosure, including in risk factors, explaining that the value of the notes at issuance and/or the price that the affiliate would pay for the notes in the secondary market, assuming no change in market conditions, will be less than the public offering price. In order for investors to be able to understand the relationship of the note purchase price to its fair value (as estimated by the issuer or its affiliate) and potential secondary market prices, we believe issuers should consider prominently disclosing the difference between the public offering price of the note and the issuer or its affiliate's estimate of the fair value of the note or discuss with us the reasons such disclosure should not be provided. Issuers also should consider identifying the specific amounts being paid from the note proceeds for costs and expenses.
Response:
The Corporation's structured note offering documents state that the secondary market value of the structured notes at the time of pricing is expected to be less than the purchase price, and also disclose the wide range of factors that could cause their value to be less than (or more than) that purchase price. These factors include certain costs associated with developing, hedging and offering the notes, the time remaining to maturity of the notes, the level, direction and volatility of market interest rates generally, the level and the volatility of the reference asset, and the Corporation's financial condition and creditworthiness.
The Corporation believes that the relevant methodology and terminology for valuing structured notes, and the costs and expenses factored into their pricing, may vary to a significant extent among different issuers and their affiliates. The valuation of structured notes involves a degree of subjectivity. For example, issuers or their affiliates may use different methodologies and definitions of fair value, such as differing views as to the volatility of certain reference assets. Pricing subjectivity also may arise as a result of an issuer's or its affiliate's use of portfolio hedging. Furthermore, because the value of these instruments changes rapidly as market conditions fluctuate, an issuer (or its affiliate) would determine different values for the same note depending upon the time of measurement.
The Corporation believes that requiring issuers to provide the indicated disclosures, in the absence of agreed upon and consistent standards as to the disclosure approach, could potentially result in more confusion than clarity for investors. If different issuers calculate and/or disclose these values in different ways for comparable notes, investors would be unable to make an apples-to-apples comparison between them, and may mistake differences in methodology in the calculation of the value of different notes for actual differences in value. We note that there are currently no disclosure standards that require this type of disclosure for structured notes or for other types of debt securities. As set forth in your question, we would be pleased to discuss this question in further detail with the Staff.
Notwithstanding the points noted above, in the case of notes offered to GWIM investors, the Corporation has added disclosure of the estimated profit earned by MLPF&S from the transactions through which the notes are structured and hedged. This disclosure is intended to provide individual investors in structured notes additional detail as to the components that make up the costs of the notes.
Ms. Amy M. Starr
April 26, 2012
Page 4
3.
We have observed that some issuers of structured notes or their affiliates will, for a limited period of time immediately following an offering, use values on account statements or provide repurchase prices to customers at levels that temporarily exceed the issuer's or affiliate's own estimate of the fair value of the product. Further, we understand that after a given period of time such values and prices will be readjusted to better reflect the issuer's or affiliate's own estimate of the fair value of the product. If applicable, we ask that you disclose, including in risk factor disclosure as appropriate, your usage of different values and prices in this manner and explain the potential impacts on post-offering pricing, valuation, and trading.
Response:
The Corporation notes that it does not provide values of this kind to investors. MLPF&S provides account statements for its brokerage customers, and it also provides certain after market support or market-making in relation to the Corporation's structured notes. Generally, in the period immediately following the initial offering of a series of structured notes offered through GWIM, MLPF&S may be more actively engaged in supporting the secondary market by quoting an indicative or firm price that exceeds fair value, and its account statements would reflect such a higher value. Over time, and depending on market conditions, MLPF&S may quote different prices for the structured notes, which may be lower or higher than its estimate of the fair value of the notes. The duration of this market-making support varies based upon a variety of factors, is completely discretionary and may be discontinued or modified at any time.
In this regard, the Corporation's offering documents currently include risk factors which indicate that in any market making activity performed by MLPF&S, the price at which MLPF&S may bid for, offer, purchase, or sell the notes may differ from the values determined by its pricing models. As disclosed in these risk factors, there are a variety of factors that affect prices in the secondary market, making it difficult to provide meaningful clear disclosure to investors as to how these prices will change over time. In addition, most of these notes are intended to be held to maturity, and are typically not recommended to be sold shortly after purchase. Accordingly, the Corporation's practice is not to include disclosure that might suggest that there are times prior to maturity at which it may be more or less beneficial to attempt to sell the notes. Please see the related discussion in the response to Comment 8 below.
Finally, the Corporation values its structured notes for financial accounting purposes in accordance with U.S. generally accepted accounting principles. The appropriate accounting treatment differs depending on the particular details of the structured note. The value obtained for this purpose may vary from any price at which MLPF&S offers to repurchase the notes in a market-making transaction.
Use of Proceeds and Reasons for Offerings
4.
Issuers often provide disclosure explaining that they will use the proceeds of a structured note offering for general corporate purposes and may use an unquantified portion for hedging transactions. Item 504 of Regulation S-K requires that issuers disclose the approximate amounts intended to be used for each purpose. If the issuer does not have specific plans for a significant portion of the proceeds of the offering, it should note the reasons for the offering.
Ms. Amy M. Starr
April 26, 2012
Page 5
Response:
The Corporation's pricing supplements and product supplements include disclosure regarding use of proceeds substantially as follows: “We will use the net proceeds we receive from the sale of the notes for the purposes described in the accompanying prospectus under 'Use of Proceeds.' In addition, we expect that we or our affiliates may use a portion of the net proceeds to hedge our obligations under the notes.” The accompanying prospectus discloses that, unless otherwise indicated in an applicable supplement, the Corporation will use the proceeds from offerings for general corporate purposes, including a non-exclusive list of examples of these purposes. As a practical matter, as a large, diversified financial services holding company and frequent issuer, the net proceeds from the Corporation's various offerings, including structured notes, are fungible and are used in effect as the equivalent of “working capital” for a financial services company. Accordingly, the Corporation believes that its disclosure of the general use of proceeds complies with Item 504 of Regulation S-K.
Regarding hedging activities, as noted in our response to Comment 2 above, for offerings sold through the GWIM division, the estimated profit earned by MLPF&S from the transactions through which the notes are structured and hedged is set forth in the “Plan of Distribution” section of each pricing supplement, together with the underwriting fee or commission. As to other offerings, the Corporation does not specifically allocate any portion of the net proceeds for hedging transactions, as the related structuring and hedging is provided without separate cost accounting and is not quantified by the Corporation.
The Corporation notes that it is not generally possible to quantify in any meaningful way over the term of a note the costs that will be incurred in connection with any hedging activity. Hedging activity may be direct or indirect and may be undertaken by the Corporation or its affiliates on an individual or portfolio basis (hedging more than one, or many, of the Corporation's debt obligations) and therefore may not be specific to a particular note.
5.
Please explain to us in your response letter with a view toward disclosure in your future Exchange Act reports, the purpose of your structured notes program generally, and the purposes of particular types of offerings or products. Explain to us how significant structured notes are to your overall plan of financing and liquidity position. Please tell us about any material trends or changes in your use of, or your experience with, structured notes in the past few years, including trends or changes in your reliance on structured notes as a liquidity source. Also tell us about trends or changes in note types and/or the referenced asset classes or referenced indices. Please include quantitative information about outstanding structured note obligations in recent periods.
Response:
The Corporation issues structured notes as a means to diversify its unsecured funding sources. However, the Corporation is not dependent upon them as a source of financing. Instead, the Corporation issues its structured notes in the forms, structures and amounts desired by institutional and individual investment clients of MLPF&S. Many of these clients have specific investment goals that involve particular reference assets and a view as to the direction and/or volatility of those reference assets.
Ms. Amy M. Starr
April 26, 2012
Page 6
The particular features of the structured notes offered and the reference assets to which payments on the notes are linked are driven by client demand and as a result shift from time to time. For example, during the recession of 2009 and 2010, the Corporation experienced an increase in demand for notes linked to commodities. As the economy has rebounded, however, the Corporation has begun to offer fewer structured notes linked to commodities. The Corporation also has observed that in recent years, a larger portion of its issuances of structured notes involve notes that pay interest prior to maturity, as opposed to a single payment at maturity.
On a global basis, the Corporation had outstanding structured note liabilities with a boo
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CORRESP 1 filename1.htm Comment Letter - Structured Notes 4.26.12 April 26, 2012 Via EDGAR Ms. Amy M. Starr Chief Office of Capital Markets Trends Division of Corporation Finance U.S. Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 Re: Bank of America Corporation 424 Prospectuses relating to Registration Statements on Form S-3ASR Filed April 20, 2009 -- File No. 333-158663 Filed March 30, 2012 - File No. 333-180488 Dear Ms. Starr: Bank of America Corporation (the “Corporation”) has received your letter dated April 12, 2012 (the “Comment Letter”) setting forth the comments of the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “SEC”) with respect to the Corporation's offerings of structured notes pursuant to the Corporation's Registration Statements on Form S-3ASR (Registration Nos. 333-158663 and 333-180488). The Corporation's responses to the Comment Letter are set forth below. For ease of reference, each of the Staff's comments is repeated below, followed by the Corporation's response. The Corporation issues its U.S. registered MTN structured notes through its broker-dealer affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), which offers the notes through different internal divisions to different types of investors. Where appropriate in this letter, we discuss the significant differences between the manner in which structured notes are offered through these divisions. The Corporation internally identifies these divisions as follows: Ms. Amy M. Starr April 26, 2012 Page 2 Division Types of Structured Notes Aggregate Principal Amount of U.S. Registered Offerings Sold in 2011 Global Wealth and Investment Management division (“GWIM”) (the private wealth group, focused on private client investors) Cash settled notes offered directly to MLPF&S's wealth management clients, linked primarily to well-known indices, and to equities, commodities, currencies and interest rates. $4.76 billion Global Markets division (“Global Markets”) Structured notes linked primarily to well-known indices, and to equities, commodities and interest rates that are offered directly to institutional investors. Structured notes linked primarily to well-known indices, and to equities and interest rates that are sold to unaffiliated brokers selected by MLPF&S (“third-party distribution” or “3PD”). $172.9 million $914.5 million Product Names 1. The staff in the Division of Corporation Finance has previously indicated that note titles using the term “principal protected” should also include balanced information about limitations to the principal protection feature. We believe this concern regarding potential confusion over the titles of securities may exist for note titles across various product categories. Issuers should evaluate the titles used for their different types of structured notes and should revise to clearly describe the product in a balanced manner and avoid titles that stress positive features without also identifying limiting or negative features. Response: The Corporation notes that currently it does not offer any type of structured note under its U.S. registered MTN structured note program that uses the term “principal protected” (or similar terms) in its title. A significant portion of the Corporation's current structured note offerings that are sold through GWIM have specific branded titles. The offering materials used by the Corporation for these (and all other) structured notes include prominent (and proximate) disclosures of the key risks associated with the notes, including on the cover page. For example, in the case of an “Accelerated Return Note” (“ARN”), which can provide investors with a positive return that is greater than the increase in the level of the reference asset, the Corporation's disclosures indicate prominently on the cover page that the notes involve a payment at maturity that is capped, and that may be significantly less than the principal amount. The structured notes that have branded titles consist primarily of structures that are offered through GWIM on a repeat basis each month. The recurring nature of these offerings allows investors to become familiar with the format for the different products, including the location in the offering documents of disclosures related to the unique terms and risk factors associated with each one. Ms. Amy M. Starr April 26, 2012 Page 3 Product Pricing and Value 2. We note that issuers of structured notes often include disclosure, including in risk factors, explaining that the value of the notes at issuance and/or the price that the affiliate would pay for the notes in the secondary market, assuming no change in market conditions, will be less than the public offering price. In order for investors to be able to understand the relationship of the note purchase price to its fair value (as estimated by the issuer or its affiliate) and potential secondary market prices, we believe issuers should consider prominently disclosing the difference between the public offering price of the note and the issuer or its affiliate's estimate of the fair value of the note or discuss with us the reasons such disclosure should not be provided. Issuers also should consider identifying the specific amounts being paid from the note proceeds for costs and expenses. Response: The Corporation's structured note offering documents state that the secondary market value of the structured notes at the time of pricing is expected to be less than the purchase price, and also disclose the wide range of factors that could cause their value to be less than (or more than) that purchase price. These factors include certain costs associated with developing, hedging and offering the notes, the time remaining to maturity of the notes, the level, direction and volatility of market interest rates generally, the level and the volatility of the reference asset, and the Corporation's financial condition and creditworthiness. The Corporation believes that the relevant methodology and terminology for valuing structured notes, and the costs and expenses factored into their pricing, may vary to a significant extent among different issuers and their affiliates. The valuation of structured notes involves a degree of subjectivity. For example, issuers or their affiliates may use different methodologies and definitions of fair value, such as differing views as to the volatility of certain reference assets. Pricing subjectivity also may arise as a result of an issuer's or its affiliate's use of portfolio hedging. Furthermore, because the value of these instruments changes rapidly as market conditions fluctuate, an issuer (or its affiliate) would determine different values for the same note depending upon the time of measurement. The Corporation believes that requiring issuers to provide the indicated disclosures, in the absence of agreed upon and consistent standards as to the disclosure approach, could potentially result in more confusion than clarity for investors. If different issuers calculate and/or disclose these values in different ways for comparable notes, investors would be unable to make an apples-to-apples comparison between them, and may mistake differences in methodology in the calculation of the value of different notes for actual differences in value. We note that there are currently no disclosure standards that require this type of disclosure for structured notes or for other types of debt securities. As set forth in your question, we would be pleased to discuss this question in further detail with the Staff. Notwithstanding the points noted above, in the case of notes offered to GWIM investors, the Corporation has added disclosure of the estimated profit earned by MLPF&S from the transactions through which the notes are structured and hedged. This disclosure is intended to provide individual investors in structured notes additional detail as to the components that make up the costs of the notes. Ms. Amy M. Starr April 26, 2012 Page 4 3. We have observed that some issuers of structured notes or their affiliates will, for a limited period of time immediately following an offering, use values on account statements or provide repurchase prices to customers at levels that temporarily exceed the issuer's or affiliate's own estimate of the fair value of the product. Further, we understand that after a given period of time such values and prices will be readjusted to better reflect the issuer's or affiliate's own estimate of the fair value of the product. If applicable, we ask that you disclose, including in risk factor disclosure as appropriate, your usage of different values and prices in this manner and explain the potential impacts on post-offering pricing, valuation, and trading. Response: The Corporation notes that it does not provide values of this kind to investors. MLPF&S provides account statements for its brokerage customers, and it also provides certain after market support or market-making in relation to the Corporation's structured notes. Generally, in the period immediately following the initial offering of a series of structured notes offered through GWIM, MLPF&S may be more actively engaged in supporting the secondary market by quoting an indicative or firm price that exceeds fair value, and its account statements would reflect such a higher value. Over time, and depending on market conditions, MLPF&S may quote different prices for the structured notes, which may be lower or higher than its estimate of the fair value of the notes. The duration of this market-making support varies based upon a variety of factors, is completely discretionary and may be discontinued or modified at any time. In this regard, the Corporation's offering documents currently include risk factors which indicate that in any market making activity performed by MLPF&S, the price at which MLPF&S may bid for, offer, purchase, or sell the notes may differ from the values determined by its pricing models. As disclosed in these risk factors, there are a variety of factors that affect prices in the secondary market, making it difficult to provide meaningful clear disclosure to investors as to how these prices will change over time. In addition, most of these notes are intended to be held to maturity, and are typically not recommended to be sold shortly after purchase. Accordingly, the Corporation's practice is not to include disclosure that might suggest that there are times prior to maturity at which it may be more or less beneficial to attempt to sell the notes. Please see the related discussion in the response to Comment 8 below. Finally, the Corporation values its structured notes for financial accounting purposes in accordance with U.S. generally accepted accounting principles. The appropriate accounting treatment differs depending on the particular details of the structured note. The value obtained for this purpose may vary from any price at which MLPF&S offers to repurchase the notes in a market-making transaction. Use of Proceeds and Reasons for Offerings 4. Issuers often provide disclosure explaining that they will use the proceeds of a structured note offering for general corporate purposes and may use an unquantified portion for hedging transactions. Item 504 of Regulation S-K requires that issuers disclose the approximate amounts intended to be used for each purpose. If the issuer does not have specific plans for a significant portion of the proceeds of the offering, it should note the reasons for the offering. Ms. Amy M. Starr April 26, 2012 Page 5 Response: The Corporation's pricing supplements and product supplements include disclosure regarding use of proceeds substantially as follows: “We will use the net proceeds we receive from the sale of the notes for the purposes described in the accompanying prospectus under 'Use of Proceeds.' In addition, we expect that we or our affiliates may use a portion of the net proceeds to hedge our obligations under the notes.” The accompanying prospectus discloses that, unless otherwise indicated in an applicable supplement, the Corporation will use the proceeds from offerings for general corporate purposes, including a non-exclusive list of examples of these purposes. As a practical matter, as a large, diversified financial services holding company and frequent issuer, the net proceeds from the Corporation's various offerings, including structured notes, are fungible and are used in effect as the equivalent of “working capital” for a financial services company. Accordingly, the Corporation believes that its disclosure of the general use of proceeds complies with Item 504 of Regulation S-K. Regarding hedging activities, as noted in our response to Comment 2 above, for offerings sold through the GWIM division, the estimated profit earned by MLPF&S from the transactions through which the notes are structured and hedged is set forth in the “Plan of Distribution” section of each pricing supplement, together with the underwriting fee or commission. As to other offerings, the Corporation does not specifically allocate any portion of the net proceeds for hedging transactions, as the related structuring and hedging is provided without separate cost accounting and is not quantified by the Corporation. The Corporation notes that it is not generally possible to quantify in any meaningful way over the term of a note the costs that will be incurred in connection with any hedging activity. Hedging activity may be direct or indirect and may be undertaken by the Corporation or its affiliates on an individual or portfolio basis (hedging more than one, or many, of the Corporation's debt obligations) and therefore may not be specific to a particular note. 5. Please explain to us in your response letter with a view toward disclosure in your future Exchange Act reports, the purpose of your structured notes program generally, and the purposes of particular types of offerings or products. Explain to us how significant structured notes are to your overall plan of financing and liquidity position. Please tell us about any material trends or changes in your use of, or your experience with, structured notes in the past few years, including trends or changes in your reliance on structured notes as a liquidity source. Also tell us about trends or changes in note types and/or the referenced asset classes or referenced indices. Please include quantitative information about outstanding structured note obligations in recent periods. Response: The Corporation issues structured notes as a means to diversify its unsecured funding sources. However, the Corporation is not dependent upon them as a source of financing. Instead, the Corporation issues its structured notes in the forms, structures and amounts desired by institutional and individual investment clients of MLPF&S. Many of these clients have specific investment goals that involve particular reference assets and a view as to the direction and/or volatility of those reference assets. Ms. Amy M. Starr April 26, 2012 Page 6 The particular features of the structured notes offered and the reference assets to which payments on the notes are linked are driven by client demand and as a result shift from time to time. For example, during the recession of 2009 and 2010, the Corporation experienced an increase in demand for notes linked to commodities. As the economy has rebounded, however, the Corporation has begun to offer fewer structured notes linked to commodities. The Corporation also has observed that in recent years, a larger portion of its issuances of structured notes involve notes that pay interest prior to maturity, as opposed to a single payment at maturity. On a global basis, the Corporation had outstanding structured note liabilities with a boo