The information in this “Summary” section is qualified by the more detailed information set forth in this pricing supplement, the product prospectus supplement, the prospectus supplement, and the prospectus.
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General:
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This pricing supplement relates to an offering of Reverse Convertible Notes (“RevCons” or the “Notes”) linked to the common stock of Pioneer Natural Resources Company (the “Reference Stock”). The Notes have a term of three months.
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Issuer:
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Royal Bank of Canada (“Royal Bank”)
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Issue:
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Senior Medium-Term Notes, Series F
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Pricing Date:
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December 17, 2014
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Issue Date:
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December 22, 2014
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Denominations:
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Minimum denomination of $1,000, and integral multiples of $1,000 thereafter.
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Designated Currency:
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U.S. Dollars
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Coupon Payment:
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Each monthly coupon will be equal to 1/12th of the annual coupon rate (30/360) set forth on the cover page. You will receive the stated coupon for only three months of a year, such that your actual maximum total return on these Notes will be less than the annual rate.
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Coupon Payment
Date(s):
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The coupon will be paid on the 22nd day of each month during the term of the Note, except for the final coupon, which will be paid on the Maturity Date.
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Valuation Date:
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March 17, 2015
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Maturity Date:
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March 20, 2015
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Reference Stock:
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The common stock of Pioneer Natural Resources Company, which trades on the New York Stock Exchange under the symbol “PXD.”
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Term:
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Three (3) months.
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Initial Stock Price:
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The closing price of the Reference Stock on the Pricing Date.
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Final Stock Price:
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The closing price of the Reference Stock on the Valuation Date.
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Reverse Convertible Notes due
March 20, 2015
Linked to the Common Stock of
Pioneer Natural Resources Company
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Payment at Maturity (if
held to maturity):
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For each $1,000 in principal amount of the Notes, the investor will receive $1,000 plus any accrued and unpaid interest at maturity unless:
(i) the Final Stock Price is less than the Initial Stock Price; and
(ii) on any day during the Monitoring Period, the closing price of the Reference Stock is less than the Barrier Price.
If the conditions described in (i) and (ii) are both satisfied, then at maturity the investor will receive, instead of the principal amount of the Notes, in addition to any accrued and unpaid interest, the number of shares of the Reference Stock equal to the Physical Delivery Amount, or at our election, the cash value of those shares. If we elect to deliver shares of the Reference Stock, fractional shares will be paid in cash.
Investors in the Notes could lose some or all of their investment at maturity if there has been a decline in the trading price of the Reference Stock.
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Monitoring Period:
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From and excluding the Pricing Date to and including the Valuation Date.
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Monitoring Method:
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Close of Trading Day
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Physical Delivery
Amount:
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For each $1,000 principal amount, a number of shares of the Reference Stock equal to the principal amount divided by the Initial Stock Price, subject to adjustment as described in the product prospectus supplement. If this number is not a round number, then the number of shares of the Reference Stock to be delivered will be rounded down and the fractional part shall be paid in cash.
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Calculation Agent:
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RBC Capital Markets, LLC
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Secondary Market:
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RBC Capital Markets, LLC (or one of its affiliates), though not obligated to do so, plans to maintain a secondary market in the Notes after the Issuance Date. The amount that an investor may receive upon sale of the Notes prior to maturity may be less than the principal amount of those Notes.
We may use this pricing supplement in the initial sale of the RevCons. In addition, RBC Capital Markets, LLC or another of our affiliates may use this pricing supplement in a market-making transaction in the RevCons after their initial sale. Unless we or our agent informs the purchaser otherwise in the confirmation of sale, this pricing supplement is being used in a market-making transaction.
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Listing:
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None
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Settlement:
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DTC global notes
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Terms Incorporated In
the Master Note:
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All of the terms appearing above the item captioned “Secondary Market” on the cover page and pages P2 and P3 of this pricing supplement and the terms appearing under the caption “General Terms of the Notes” in the product prospectus supplement.
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Reverse Convertible Notes due
March 20, 2015
Linked to the Common Stock of
Pioneer Natural Resources Company
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ADDITIONAL TERMS OF YOUR NOTES
You should read this pricing supplement together with the prospectus dated July 23, 2013, as supplemented by the prospectus supplement dated July 23, 2013 and the product prospectus supplement dated July 25, 2013, relating to our Senior Global Medium-Term Notes, Series F, of which these Notes are a part. Capitalized terms used but not defined in this pricing supplement will have the meanings given to them in the product prospectus supplement. In the event of any conflict, this pricing supplement will control. The Notes vary from the terms described in the product prospectus supplement in several important ways. You should read this pricing supplement carefully.
This pricing supplement, together with the documents listed below, contains the terms of the Notes and supersedes all prior or contemporaneous oral statements as well as any other written materials including preliminary or indicative pricing terms, correspondence, trade ideas, structures for implementation, sample structures, brochures or other educational materials of ours. You should carefully consider, among other things, the matters set forth in “Risk Factors” in the prospectus supplement dated July 23, 2013 and “Additional Risk Factors Specific to the Notes” in the product prospectus supplement dated July 25, 2013, as the Notes involve risks not associated with conventional debt securities. We urge you to consult your investment, legal, tax, accounting and other advisors before you invest in the Notes. You may access these documents on the SEC website at www.sec.gov as follows (or if that address has changed, by reviewing our filings for the relevant date on the SEC website):
Prospectus dated July 23, 2013:
Prospectus Supplement dated July 23, 2013:
Product Prospectus Supplement dated July 25, 2013:
Our Central Index Key, or CIK, on the SEC Website is 1000275. As used in this pricing supplement, the “Company,” “we,” “us,” or “our” refers to Royal Bank of Canada.
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Reverse Convertible Notes due
March 20, 2015
Linked to the Common Stock of
Pioneer Natural Resources Company
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HYPOTHETICAL EXAMPLES OF AMOUNTS PAYABLE AT MATURITY
The examples set forth below are provided for illustration purposes only. The assumptions in each of the examples are purely hypothetical and do not relate to the actual performance of the Reference Stock. The hypothetical terms do not purport to be representative of every possible scenario concerning increases or decreases in the price of the Reference Stock on the Valuation Date relative to its price on the Pricing Date. We cannot predict the actual performance of the Reference Stock.
The table below illustrates the Payment at Maturity of the Notes (excluding the final Coupon), given the Initial Stock Price of $144.80, the Barrier Price of $108.60 and an initial investment of $1,000. Hypothetical Final Stock Prices are shown in the first column on the left. For this purpose, we have assumed that there will be no anti-dilution adjustments to the Final Stock Price and no market disruption events. The second column shows the Payment at Maturity (as a percentage of the principal amount) in a case where the market price of the Reference Stock does not fall below the Barrier Price at any time during the Monitoring Period. The third column shows the Payment at Maturity (as a percentage of the principal amount) in a case where the market price of the Reference Stock does fall below the Barrier Price during the Monitoring Period. The fourth column shows the Physical Delivery Amount as a number of shares of the Reference Stock. The fifth column shows the Cash Delivery Amount, should we elect to deliver the Cash Delivery Amount instead of the Physical Delivery Amount.
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Hypothetical
Final Stock
Price
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If the closing market price of the
Reference Stock does not fall below
the Barrier Price on any day during
the Monitoring Period:
Payment at Maturity as Percentage of
Principal Amount
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If the closing market price of the
Reference Stock falls below the
Barrier Price on any day during the
Monitoring Period:
Payment at Maturity as Percentage
of Principal Amount
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Physical Delivery
Amount as
Number of Shares
of the Reference
Stock
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Cash
Delivery
Amount
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$289.60
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100.00%
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100.00%
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n/a
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n/a
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$253.40
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100.00%
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100.00%
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n/a
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n/a
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$217.20
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100.00%
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100.00%
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n/a
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n/a
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$181.00
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100.00%
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100.00%
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n/a
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n/a
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$144.80
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100.00%
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100.00%
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n/a
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n/a
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$130.25
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100.00%
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Physical or Cash Delivery Amount
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6.91
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$900.00
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$115.77
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100.00%
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Physical or Cash Delivery Amount
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6.91
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$800.00
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$108.60
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100.00%
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Physical or Cash Delivery Amount
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6.91
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$750.00
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$108.39
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n/a
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Physical or Cash Delivery Amount
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6.91
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$749.00
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$79.59
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n/a
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Physical or Cash Delivery Amount
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6.91
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$550.00
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$65.12
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n/a
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Physical or Cash Delivery Amount
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6.91
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$450.00
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$36.18
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n/a
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Physical or Cash Delivery Amount
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6.91
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$250.00
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$0
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n/a
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Physical or Cash Delivery Amount
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6.91
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$0
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The Payments at Maturity shown above are entirely hypothetical; they are based on market prices for the Reference Stock that may not be achieved on the Valuation Date and on assumptions that may prove to be erroneous. The actual market value of your Notes on the Maturity Date or at any other time, including any time you may wish to sell your Notes, may bear little relation to the hypothetical Payments at Maturity shown above, and those amounts should not be viewed as an indication of the financial return on an investment in the Notes or on an investment in the Reference Stock. Please read “Additional Risk Factors Specific to Your Notes” and “Hypothetical Returns on Your Notes” in the accompanying product prospectus supplement.
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Reverse Convertible Notes due
March 20, 2015
Linked to the Common Stock of
Pioneer Natural Resources Company
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Payments on your Notes are economically equivalent to the amounts that would be paid on a combination of other instruments. For example, payments on your Notes are economically equivalent to the amounts that would be paid on a combination of an interest-bearing bond purchased, and an option sold, by the investor (with an implicit option premium paid over time to the investor). The discussion in this paragraph does not modify or affect the terms of the offered Notes or the United States or Canadian income tax treatment of the offered Notes as described under “Supplemental Discussion of Canadian Tax Consequences” and “Supplemental Discussion of U.S. Federal Income Tax Consequences” in the accompanying product prospectus supplement.
SELECTED RISK CONSIDERATIONS
An investment in the Notes involves significant risks. Investing in the Notes is not equivalent to investing directly in the Reference Stock. These risks are explained in more detail in the section “Additional Risk Factors Specific to Your Notes” in the product prospectus supplement. In addition to the risks described in the prospectus supplement and the product prospectus supplement, you should consider the following:
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·
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Principal at Risk — Investors in the Notes could lose some or a substantial value of their principal amount if there is a decline in the trading price of the Reference Stock between the pricing date and the valuation date. The rate of interest payable on the Notes, which will be payable for less than one year, may not be sufficient to compensate for any such loss.
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·
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Market Disruption Events and Adjustments —The payment at maturity and the valuation date are subject to adjustment as described in the product prospectus supplement. For a description of what constitutes a market disruption event as well as the consequences of that market disruption event, see “General Terms of the Notes—Consequences of Market Disruption Events” in the product prospectus supplement.
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·
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The Initial Estimated Value of the Notes Is Less than the Price to the Public —The initial estimated value for the Notes set forth on the cover page does not represent a minimum price at which we, RBCCM or any of our affiliates would be willing to purchase the Notes in any secondary market (if any exists) at any time. If you attempt to sell the Notes prior to maturity, their market value may be lower than the price you paid for them and the initial estimated value. This is due to, among other things, changes in the price of the Reference Stock, the borrowing rate we pay to issue securities of this kind, and the inclusion in the price to the public of the underwriting discount and the estimated costs relating to our hedging of the Notes. These factors, together with various credit, market and economic factors over the term of the Notes, are expected to reduce the price at which you may be able to sell the Notes in any secondary market and will affect the value of the Notes in complex and unpredictable ways. Assuming no change in market conditions or any other relevant factors, the price, if any, at which you may be able to sell your Notes prior to maturity may be less than your original purchase price, as any such sale price would not be expected to include the underwriting discount and the hedging costs relating to the Notes. In addition to bid-ask spreads, the value of the Notes determined for any secondary market price is expected to be based on the secondary rate rather than the internal funding rate used to price the Notes and determine the initial estimated value. As a result, the secondary price will be less than if the internal funding rate was used. The Notes are not designed to be short-term trading instruments. Accordingly, you should be able and willing to hold your Notes to maturity.
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Reverse Convertible Notes due
March 20, 2015
Linked to the Common Stock of
Pioneer Natural Resources Company
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·
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The Initial Estimated Value of the Notes on the Cover Page Is an Estimate Only, Calculated as of the Time the Terms of the Notes Were Set —The initial estimated value of the Notes is based on the value of our obligation to make the payments on the Notes, together with the mid-market value of the derivative embedded in the terms of the Notes. See “Structuring the Notes” below. Our estimate is based on a variety of assumptions, including our credit spreads, expectations as to dividends, interest rates and volatility, and the expected term of the Notes. These assumptions are based on certain forecasts about future events, which may prove to be incorrect. Other entities may value the Notes or similar securities at a price that is significantly different than we do.
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The value of the Notes at any time after the pricing date will vary based on many factors, including changes in market conditions, and cannot be predicted with accuracy. As a result, the actual value you would receive if you sold the Notes in any secondary market, if any, should be expected to differ materially from the initial estimated value of your notes.
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Reverse Convertible Notes due
March 20, 2015
Linked to the Common Stock of
Pioneer Natural Resources Company
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U.S. FEDERAL TAX INFORMATION
RevCon 78010U7F8 (PXD): 0.25% of each stated interest payment (18.25% in total) on the RevCons will be treated as an interest payment and 18.00% of each stated interest payment will be treated as payment for the Put Option for U.S. federal income tax purposes.
Please see the discussion (including the opinion of our counsel Morrison & Foerster LLP) in the product prospectus supplement dated July 25, 2013 under “Supplemental Discussion of U.S. Federal Income Tax Consequences,” which applies to your Notes, and is supplemented by the following disclosure:
Dividend Equivalent: Under proposed U.S. Treasury Department regulations, withholding due to any payment being treated as a “dividend equivalent” (as discussed on page PS-28 of the product prospectus supplement) will begin no earlier than January 1, 2016. However, the U.S. Treasury Department and Internal Revenue Service have announced that they intend to limit this withholding to equity-linked instruments issued on or after the date that is 90 days after the date of publication in the U.S. Federal Register of final regulations addressing dividend equivalent withholding.
INFORMATION REGARDING THE ISSUER OF THE REFERENCE STOCK
The Reference Stock is registered under the Securities Exchange Act of 1934 (the “Exchange Act”). Companies with securities registered under that Act are required to file periodically certain financial and other information specified by the Securities and Exchange Commission (the “SEC”). Information provided to or filed with the SEC can be inspected and copied at the public reference facilities maintained by the SEC or through the SEC’s website at www.sec.gov. In addition, information regarding the Reference Stock may be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated documents.
The following information regarding the issuer of the Reference Stock is derived from publicly available information. We have not independently verified the accuracy or completeness of reports filed by the issuer with the SEC, information published by it on its website or in any other format, information about it obtained from any other source or the information provided below.
Pioneer Natural Resources Company is an independent oil and gas exploration and production company, headquartered in Dallas, Texas, with operations primarily in the United States.
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Reverse Convertible Notes due
March 20, 2015
Linked to the Common Stock of
Pioneer Natural Resources Company
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HISTORICAL INFORMATION
The following graph sets forth the recent historical performances of the Reference Stock. In addition, below the graph is a table setting forth the intra-day high, intra-day low and period-end closing prices of the Reference Stock. The information provided in the table is for the four calendar quarters of 2011, 2012 and 2013, the first, second and third calendar quarters of 2014 and for the period from October 1, 2014 to December 17, 2014.
We obtained the information regarding the historical performance of the Reference Stock in the chart below from Bloomberg Financial Markets.
We have not independently verified the accuracy or completeness of the information obtained from Bloomberg Financial Markets. The historical performance of the Reference Stock should not be taken as an indication of future performance, and no assurance can be given as to the market prices of the Reference Stock on the Valuation Date. We cannot give you assurance that the performance of the Reference Stock will not result in the loss of all or part of your investment.
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Reverse Convertible Notes due
March 20, 2015
Linked to the Common Stock of
Pioneer Natural Resources Company
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Period-Start
Date
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Period-End
Date
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High Intra-Day
Price of the
Reference Stock in ($)
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Low Intra-Day
Price of the
Reference Stock in ($)
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Period-End Closing
Price of the Reference
Stock in ($)
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1/1/2011
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3/31/2011
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104.22
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85.93
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101.92
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4/1/2011
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6/30/2011
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106.07
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82.41
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89.57
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7/1/2011
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9/30/2011
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99.64
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65.76
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65.77
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10/1/2011
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12/30/2011
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97.10
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58.71
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89.48
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1/1/2012
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3/30/2012
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119.19
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90.30
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111.59
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4/1/2012
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6/29/2012
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117.63
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77.44
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88.21
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7/1/2012
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9/28/2012
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115.67
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82.19
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104.40
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10/1/2012
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12/31/2012
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110.67
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99.75
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106.59
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1/1/2013
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3/28/2013
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133.67
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107.30
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124.25
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4/1/2013
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6/28/2013
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157.80
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109.25
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144.75
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7/1/2013
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9/30/2013
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190.15
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146.19
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188.80
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10/1/2013
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12/31/2013
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227.02
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172.62
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184.07
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1/1/2014
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3/31/2014
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205.84
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164.10
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187.14
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4/1/2014
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6/30/2014
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234.20
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177.62
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229.81
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7/1/2014
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9/30/2014
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234.60
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193.08
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196.97
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10/1/2014
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12/17/2014
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199.49
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127.39
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144.80
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PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
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Reverse Convertible Notes due
March 20, 2015
Linked to the Common Stock of
Pioneer Natural Resources Company
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SUPPLEMENTAL PLAN OF DISTRIBUTION (CONFLICTS OF INTEREST)
We expect that delivery of the Notes will be made against payment for the Notes on or about December 22, 2014, which is the third (3rd) business day following the Pricing Date (this settlement cycle being referred to as “T+3”). See “Plan of Distribution” in the prospectus supplement. For additional information as to the relationship between us and RBC Capital Markets, LLC, please see the section “Plan of Distribution—Conflicts of Interest” in the prospectus.
STRUCTURING THE NOTES
The Notes are our debt securities, the return on which is linked to the performance of the Reference Stock. As is the case for all of our debt securities, including our structured notes, the economic terms of the Notes reflect our actual or perceived creditworthiness at the time of pricing. In addition, because structured notes result in increased operational, funding and liability management costs to us, we typically borrow the funds under these Notes at a rate that is more favorable to us than the rate that we might pay for a conventional fixed or floating rate debt security of comparable maturity. Using this relatively lower implied borrowing rate rather than the secondary market rate, is a factor that is likely reduced initial estimated value of the Notes at the time their terms were set. Unlike the estimated value included in this pricing supplement, any value of the Notes determined for purposes of a secondary market transaction may be based on a different funding rate, which may result in a lower value for the Notes than if our initial internal funding rate were used.
In order to satisfy our payment obligations under the Notes, we may choose to enter into certain hedging arrangements (which may include call options, put options or other derivatives) on the issue date with RBCCM or one of our other subsidiaries. The terms of these hedging arrangements take into account a number of factors, including our creditworthiness, interest rate movements, the volatility of the Reference Stock, and the tenor of the Notes. The economic terms of the Notes and their initial estimated value depend in part on the terms of these hedging arrangements.
The lower implied borrowing rate is a factor that reduces the economic terms of the Notes to you. The initial offering price of the Notes also reflects the underwriting commission and our estimated hedging costs. These factors result in the initial estimated value for the Notes on the pricing date being less than their public offering price. See “Selected Risk Considerations—The Initial Estimated Value of the Notes Is Less than the Price to the Public” above.
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Reverse Convertible Notes due
March 20, 2015
Linked to the Common Stock of
Pioneer Natural Resources Company
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VALIDITY OF THE NOTES
In the opinion of Norton Rose Fulbright Canada LLP, the issue and sale of the Notes has been duly authorized by all necessary corporate action of the Bank in conformity with the Indenture, and when the Notes have been duly executed, authenticated and issued in accordance with the Indenture, the Notes will be validly issued and, to the extent validity of the Notes is a matter governed by the laws of the Province of Ontario or Québec, or the laws of Canada applicable therein, and will be valid obligations of the Bank, subject to applicable bankruptcy, insolvency and other laws of general application affecting creditors’ rights, equitable principles, and subject to limitations as to the currency in which judgments in Canada may be rendered, as prescribed by the Currency Act (Canada). This opinion is given as of the date hereof and is limited to the laws of the Provinces of Ontario and Quebec and the federal laws of Canada applicable thereto. In addition, this opinion is subject to customary assumptions about the Trustee’s authorization, execution and delivery of the Indenture and the genuineness of signatures and certain factual matters, all as stated in the letter of such counsel dated July 24, 2013, which has been filed as Exhibit 5.1 to Royal Bank’s Form 6-K filed with the SEC on July 24, 2013.
In the opinion of Morrison & Foerster LLP, when the Notes have been duly completed in accordance with the Indenture and issued and sold as contemplated by the prospectus supplement and the prospectus, the Notes will be valid, binding and enforceable obligations of Royal Bank, entitled to the benefits of the Indenture, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, concepts of reasonableness and equitable principles of general applicability (including, without limitation, concepts of good faith, fair dealing and the lack of bad faith). This opinion is given as of the date hereof and is limited to the laws of the State of New York. This opinion is subject to customary assumptions about the Trustee’s authorization, execution and delivery of the Indenture and the genuineness of signatures and to such counsel’s reliance on the Bank and other sources as to certain factual matters, all as stated in the legal opinion dated July 24, 2013, which has been filed as Exhibit 5.2 to the Bank’s Form 6-K dated July 24, 2013.