BofA Sells Largest Apple-Tied Note as Stock Drop Dulls Appeal

Bank of America Corp. sold $148 million of one-year notes tied to Apple Inc. (AAPL), the largest such offering in more than three years.

The securities, issued May 16, yield three times the gains of the stock, with returns capped at 27.65 percent and all capital at risk, according to a prospectus filed with the U.S. Securities and Exchange Commission. The Charlotte, North Carolina-based bank valued the notes at 97.1 cents on the dollar at the time of sale.

Issuance of notes tied to Apple has declined from last year, according to data compiled by Bloomberg. Investors have soured on the technology company amid falling market share and questions about its ability to develop new innovative products, said Oliver Pursche, president of Gary Goldberg Financial Services in Suffern, New York.

“Investor sentiment around the company right now is tilted to the negative, and that’s keeping share prices down,” Pursche, whose firm manages accounts that own Apple, said in a telephone interview. “Most investors don’t know what to do with the stock.”

Investors bought $443.4 million of Apple-linked notes this year, 39 percent less than the $728.5 million in the first five months of last year, Bloomberg data show. There were 99 such offerings this year, down 52 percent.

Apple Notes

The offering is more than twice the size of the next-largest Apple-linked security, $65.5 million of one-year notes sold by JPMorgan Chase & Co. (JPM), according to data that Bloomberg started to comprehensively collect in 2010.

The securities, issued Aug. 30, each quarter yield 3.39 percent as long as the stock isn’t below $531.248 and are called if the shares exceed their initial value, according to a prospectus. If they are below the 20 percent buffer at maturity, investors lose capital proportionate to the decline.

Apple closed at $442.93 yesterday, down 17 percent for the year.

The JPMorgan notes have paid one coupon of 3.39 percent in November and last traded for 66.3 cents on the dollar on May 21, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Susan McCabe, a spokeswoman for Bank of America, declined to comment. Justin Perras, a JPMorgan Chase spokesman, didn’t return a voicemail seeking comment.

Banks create structured notes by packaging debt with derivatives to offer customized bets to retail investors while earning fees and raising money. Derivatives are contracts whose value is derived from stocks, bonds, commodities and currencies, or events such as changes in interest rates or the weather.

To contact the reporter on this story: Kevin Dugan in New York at kdugan4@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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