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On July 21, 2026, BofA Finance LLC priced $1.62 billion in Buffered Auto-Callable Notes maturing July 26, 2029, providing investors with exposure to the Dow Jones Industrial Average, Nasdaq-100 Index, and Russell 2000 Index. These notes offer structured downside protection and automatic call features, are guaranteed by Bank of America Corporation, and pay enhanced returns of $1,303 per $1,000 principal if all three indices remain above their initial levels at maturity. Investors face up to 70% principal risk if the worst-performing index declines more than 30% from its starting value.
Key Points
- NYSE: MER-PK
- BofA Finance LLC priced $1.62 billion in three-year Buffered Auto-Callable Notes on July 21, 2026, with an issue date of July 24, 2026
- Public offering price set at $1,000 per note with a $28.50 underwriting discount; initial estimated value at pricing was $966.80 per note
- Notes become automatically callable starting July 22, 2027, if all three indices close at or above their starting values on any Call Observation Date
Payoff Structure Based on Lowest Performing Index
The notes’ returns depend on the performance of the three underlying indices relative to their starting values set on July 21, 2026. If the notes remain uncalled through maturity and all indices finish at or above their initial closing levels, investors receive $1,303 per $1,000 principal, representing a 30.3% return over three years. This structure offers upside participation without periodic interest payments.
The redemption focuses on the "Least Performing Underlying" index, which is the index with the weakest performance versus its starting value. The starting levels are: Dow Jones Industrial Average at 52,224.64, Nasdaq-100 Index at 29,155.18, and Russell 2000 Index at 2,987.395. This design exposes investors to downside risk from the worst-performing index while providing a buffer against moderate losses.
Downside Protection and Principal Risk Details
The notes include a 30% downside buffer, meaning investors do not incur losses unless the lowest-performing index drops more than 30% from its starting value. If the worst index declines between 0% and 30%, investors receive their full $1,000 principal at maturity, even with negative index returns. This appeals to investors seeking equity exposure with downside cushioning against moderate market declines.
If any index falls more than 30%, investors experience 1-to-1 losses beyond the buffer, risking up to 70% of principal. For example, if the Nasdaq-100, as the least performing index, falls to 20,408.63 (70% of its starting 29,155.18), investors lose roughly 30% of their investment. Larger declines increase losses proportionally up to the 70% maximum.
Automatic Call Feature and Early Redemption Terms
Starting July 22, 2027, the notes can be automatically called on any anniversary if all three indices close at or above their starting values on that Call Observation Date. This annual call option allows BofA Finance and Bank of America to redeem notes early under favorable market conditions, capping investor upside at the call amount. The call feature applies on four scheduled observation dates through maturity.
If called, investors receive the specified Call Amount with no further payments. Early redemption is mandatory if call conditions are met, limiting investor returns in strong markets and eliminating optionality for investors.
Credit Risk and Bank of America Guarantee
Issued by BofA Finance LLC, a special-purpose finance subsidiary, the notes carry an unconditional guarantee from Bank of America Corporation. This dual recourse structure means payments depend on both entities’ creditworthiness. However, the notes are not FDIC-insured or guaranteed as bank deposits, exposing investors to Bank of America’s credit risk despite the legal guarantee.
Payments rely on Bank of America’s credit ratings, which are investment-grade, but investors bear counterparty risk during the three-year term. The guarantee covers issuer default risk but does not protect against market or structured note risks.
Pricing, Distribution, and Underwriting Details
BofA Securities, Inc., an affiliate of BofA Finance, acts as selling and calculation agent. The public offering price is $1,000 per note with a $28.50 underwriting discount, generating $40.5 million in underwriting fees on the $1.62 billion offering. Net proceeds before expenses total approximately $1.58 billion. The initial estimated value of $966.80 per note indicates the market’s intrinsic valuation below the offering price.
Some dealers may waive selling concessions for fee-based advisory accounts, potentially lowering effective prices to $971.50 per note. Additionally, affiliates may pay referral fees up to $3.50 per $1,000 principal to other broker-dealers, embedding further costs. These factors highlight significant embedded compensation within the offering price.
Underlying Index Details and Valuation Methodology
The indices represent diverse U.S. equity market segments: Dow Jones Industrial Average (30 large-cap blue-chip stocks), Nasdaq-100 Index (100 large-cap technology and growth stocks), and Russell 2000 Index (approximately 2,000 small- and mid-cap companies). Price return indices are used, excluding dividends, which may disadvantage noteholders compared to total return benchmarks.
Starting, call, redemption barrier, and threshold values were fixed on July 21, 2026. The threshold for each index is set at 70% of its starting value, defining the principal loss trigger. The final valuation date is July 23, 2029, subject to postponement for market disruptions as outlined in the product supplement.
Structured Note Ownership Risks
These notes differ from traditional debt securities by lacking periodic coupons and embedding issuer-favorable optionality via the automatic call feature. Gains may be capped if early redemption occurs before full market appreciation. The notes are not exchange-listed, limiting liquidity and secondary market trading.
Payoff depends on a single valuation date, creating point-in-time risk. Changes in index methodology or components could disproportionately affect returns. The CUSIP 09712GH98 identifies the notes, but absence of exchange listing restricts trading opportunities compared to publicly traded securities.
Comparison with Direct Index Investments
Investors should compare these notes with direct index exposure through ETFs, mutual funds, or other vehicles tracking Dow Jones, Nasdaq-100, and Russell 2000. Direct ownership offers full index participation, daily liquidity, transparent pricing, and no issuer credit risk. The structured notes trade liquidity and full participation for potential higher returns in range-bound or modestly rising markets plus downside buffers.
The 30.3% upside must be weighed against loss of dividend income, embedded distribution costs of $28.50 to $31.50 per $1,000 principal, and three-year illiquidity. The automatic call feature caps gains and introduces reinvestment risk if called early. Conservative investors should evaluate whether the complexity and risks justify the structured returns versus simpler equity exposure.
Market Environment and Offering Timing
Priced on July 21, 2026, and issued July 24, 2026, the notes were launched when U.S. indices traded near their starting values: Dow Jones at 52,224.64, Nasdaq-100 at 29,155.18, and Russell 2000 at 2,987.395. This indicates a balanced market without extreme valuations. The structure with automatic calls and downside buffers reflects BofA Finance’s assessment of market volatility probabilities.
The three-year term aligns with medium-term horizons, covering potential market cycles. Starting index levels are fixed and cannot be reset for secondary market buyers. Initial purchasers paid a $33.20 premium over estimated intrinsic value, while secondary buyers may acquire notes at varying valuations depending on trading conditions.
