Bank of America 2010 Annual Report Download - page 197

based on the rates in effect at December 31, 2009, were 3.62 percent,
4.93 percent and 0.80 percent, respectively, at December 31, 2009. The
Corporation’s ALM activities maintain an overall interest rate risk manage-
ment strategy that incorporates the use of interest rate contracts to manage
fluctuations in earnings that are caused by interest rate volatility. The
Corporation’s goal is to manage interest rate sensitivity so that movements
in interest rates do not significantly adversely affect net interest income. The
above weighted-average rates are the contractual interest rates on the debt,
and do not reflect the impacts of derivative transactions.
The weighted-average interest rate for debt, excluding senior structured
notes, issued by Merrill Lynch & Co., Inc. and subsidiaries was 4.11 percent
and 3.73 percent at December 31, 2010 and 2009. At December 31, 2010,
the Corporation has not assumed or guaranteed the $120.9 billion of long-
term debt that was issued or guaranteed by Merrill Lynch & Co., Inc. or its
subsidiaries prior to the acquisition of Merrill Lynch by the Corporation.
Beginning late in the third quarter of 2009, in connection with the update
or renewal of certain Merrill Lynch non-U.S. securities offering programs, the
Corporation agreed to guarantee debt securities, warrants and/or certificates
issued by certain subsidiaries of Merrill Lynch & Co., Inc. on a going-forward
basis. All existing Merrill Lynch & Co., Inc. guarantees of securities issued by
those same Merrill Lynch subsidiaries under various non-U.S. securities
offering programs will remain in full force and effect as long as those secu-
rities are outstanding, and the Corporation has not assumed any of those prior
Merrill Lynch & Co., Inc. guarantees or otherwise guaranteed such securities.
Certain senior structured notes issued by Merrill Lynch are accounted for
under the fair value option. For more information on these senior structured
notes, see Note 23 – Fair Value Option.
The table below represents the book value for aggregate annual maturities
of long-term debt at December 31, 2010.
(Dollars in millions) 2011 2012 2013 2014 2015 Thereafter Total
Bank of America Corporation $16,419 $40,432 $ 8,731 $21,890 $13,236 $ 85,888 $186,596
Merrill Lynch & Co., Inc. and subsidiaries 26,554 18,611 18,053 16,650 4,515 41,370 125,753
Bank of America, N.A. and other subsidiaries 4,382 5,796 86 503 1,015 9,485 21,267
Other debt 22,760 12,549 5,031 1,293 105 2,064 43,802
Total long-term debt excluding consolidated VIEs
70,115 77,388 31,901 40,336 18,871 138,807 377,418
Long-term debt of consolidated VIEs under new consolidation guidance 19,136 11,800 17,514 9,103 1,229 12,231 71,013
Total long-term debt $89,251 $89,188 $49,415 $49,439 $20,100 $151,038 $448,431
Included in the above table are certain structured notes that contain
provisions whereby the borrowings are redeemable at the option of the holder
(put options) at specified dates prior to maturity. Other structured notes have
coupon or repayment terms linked to the performance of debt or equity
securities, indices, currencies or commodities and the maturity may be
accelerated based on the value of a referenced index or security. In both
cases, the Corporation or a subsidiary may be required to settle the obligation
for cash or other securities prior to the contractual maturity date. These
borrowings are reflected in the above table as maturing at their earliest put or
redemption date.
Trust Preferred and Hybrid Securities
Trust preferred securities (Trust Securities) are issued by trust companies
(the Trusts) that are not consolidated. These Trust Securities are mandatorily
redeemable preferred security obligations of the Trusts. The sole assets of
the Trusts generally are junior subordinated deferrable interest notes of the
Corporation or its subsidiaries (the Notes). The Trusts generally are 100 per-
cent owned finance subsidiaries of the Corporation. Obligations associated
with the Notes are included in the long-term debt table on page 194.
Certain of the Trust Securities were issued at a discount and may be
redeemed prior to maturity at the option of the Corporation. The Trusts
generally have invested the proceeds of such Trust Securities in the Notes.
Each issue of the Notes has an interest rate equal to the corresponding
Trust Securities distribution rate. The Corporation has the right to defer
payment of interest on the Notes at any time or from time to time for a
period not exceeding five years provided that no extension period may extend
beyond the stated maturity of the relevant Notes. During any such extension
period, distributions on the Trust Securities will also be deferred and the
Corporation’s ability to pay dividends on its common and preferred stock will
be restricted.
The Trust Securities generally are subject to mandatory redemption upon
repayment of the related Notes at their stated maturity dates or their earlier
redemption at a redemption price equal to their liquidation amount plus
accrued distributions to the date fixed for redemption and the premium, if
any, paid by the Corporation upon concurrent repayment of the related Notes.
Periodic cash payments and payments upon liquidation or redemption with
respect to Trust Securities are guaranteed by the Corporation or its subsid-
iaries to the extent of funds held by the Trusts (the Preferred Securities
Guarantee). The Preferred Securities Guarantee, when taken together with
the Corporation’s other obligations including its obligations under the Notes,
generally will constitute a full and unconditional guarantee, on a subordinated
basis, by the Corporation of payments due on the Trust Securities.
Hybrid Income Term Securities (HITS) totaling $1.6 billion were also issued
by the Trusts to institutional investors in 2007. The BAC Capital Trust XIII
Floating-Rate Preferred HITS have a distribution rate of three-month LIBOR
plus 40 bps and the BAC Capital Trust XIV Fixed-to-Floating-Rate Preferred
HITS have an initial distribution rate of 5.63 percent. Both series of HITS
represent beneficial interests in the assets of the respective capital trust,
which consist of a series of the Corporation’s junior subordinated notes and a
stock purchase contract for a specified series of the Corporation’s preferred
stock. The Corporation will remarket the junior subordinated notes underlying
each series of HITS on or about the five-year anniversary of the issuance to
obtain sufficient funds for the capital trusts to buy the Corporation’s preferred
stock under the stock purchase contracts.
In connection with the HITS, the Corporation entered into two replacement
capital covenants for the benefit of investors in certain series of the Corpo-
ration’s long-term indebtedness (Covered Debt). As of December 31, 2010,
the Corporation’s 6.625% Junior Subordinated Notes due 2036 constitute
the Covered Debt under the covenant corresponding to the Floating-Rate
Preferred HITS and the Corporation’s 5.625% Junior Subordinated Notes due
2035 constitute the Covered Debt under the covenant corresponding to the
Fixed-to-Floating-Rate Preferred HITS. These covenants generally restrict the
ability of the Corporation and its subsidiaries to redeem or purchase the HITS
and related securities unless the Corporation has obtained the prior approval
of the Federal Reserve if required under the Federal Reserve’s capital
guidelines, the redemption or purchase price of the HITS does not exceed
the amount received by the Corporation from the sale of certain qualifying
securities, and such replacement securities qualify as Tier 1 Capital and are
not “restricted core capital elements” under the Federal Reserve’s
guidelines.
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