Derivative Financial Instruments

9 Months Ended

Sep. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

10. DERIVATIVE FINANCIAL INSTRUMENTS

The sole objective of our use of derivative financial instruments is to minimize the risks and/or costs associated with our investments and/or financing transactions. These derivatives may or may not qualify as net investment, cash flow, or fair value hedges under the hedge accounting requirements of ASC 815 – “Derivatives and Hedging.” Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements and other identified risks. Refer to Note 2 for additional discussion of the accounting for designated and non-designated hedges.

The use of derivative financial instruments involves certain risks, including the risk that the counterparties to these contractual arrangements do not perform as agreed. To mitigate this risk, we only enter into derivative financial instruments with counterparties that have appropriate credit ratings and are major financial institutions with which we and our affiliates may also have other financial relationships.

Net Investment Hedges of Foreign Currency Risk

Certain of our international investments expose us to fluctuations in foreign interest rates and currency exchange rates. These fluctuations may impact the value of our cash receipts and payments in terms of our functional currency, the U.S. dollar. We use foreign currency forward contracts to protect the value or fix the amount of certain investments or cash flows in terms of the U.S. dollar.

The following table details our outstanding foreign exchange derivatives that were designated as net investment hedges of foreign currency risk (notional amount in thousands):

September 30, 2019				December 31, 2018
Foreign Currency Derivatives	Number of Instruments	Notional Amount		Foreign Currency Derivatives	Number of Instruments	Notional Amount
Sell GBP Forward	3	£	389,200	Sell GBP Forward	3	£	192,300
Sell EUR Forward	3	€	231,000	Sell AUD Forward	2	A$	187,600
Sell AUD Forward	3	A$	129,500	Sell EUR Forward	1	€	185,000
Sell CAD Forward	1	C$	39,100	Sell CAD Forward	1	C$	70,600

Cash Flow Hedges of Interest Rate Risk

Certain of our transactions expose us to interest rate risks, which include a fixed versus floating rate mismatch between our assets and liabilities. We use derivative financial instruments, which include interest rate caps and swaps, and may also include interest rate options, floors, and other interest rate derivative contracts, to hedge interest rate risk.

The following tables detail our outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (notional amount in thousands):

September 30, 2019
Interest Rate Derivatives	Number of Instruments	Notional  Amount		Strike		Index		Wtd.-Avg. Maturity (Years)
Interest Rate Swaps	2	C$	17,273		1.0%		CDOR	0.9
Interest Rate Caps	1	$	7,296		2.3%		USD LIBOR	0.2
Interest Rate Caps	1	C$	21,709		3.0%		CDOR	0.2
December 31, 2018
Interest Rate Derivatives	Number of Instruments	Notional  Amount		Strike		Index		Wtd.-Avg. Maturity (Years)
Interest Rate Swaps	3	C$	90,472		1.0%		CDOR	0.5
Interest Rate Caps	9	$	204,248		2.4%		USD LIBOR	0.5
Interest Rate Caps	2	C$	39,998		2.5%		CDOR	0.6

Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on our floating rate debt. During the twelve months following September 30, 2019, we estimate that an additional $111,000 will be reclassified from accumulated other comprehensive income (loss) as an increase to interest income.

Non-designated Hedges

During the three and nine months ended September 30, 2019, we recorded gains of $187,000 and $331,000, respectively, related to non-designated hedges that were reported as a component of interest expense in our consolidated financial statements. During the three and nine months ended September 30, 2018, we recorded losses of $51,000 and gains of $94,000, respectively, related to such non-designated hedges.

The following tables summarize our non-designated hedges (notional amount in thousands):

September 30, 2019
Non-designated Hedges	Number of Instruments		Notional Amount
Buy EUR / Sell USD Forward		1	€	131,900
Buy USD / Sell EUR Forward		1	€	131,900
Buy GBP / Sell EUR Forward		1	€	12,857
December 31, 2018
Non-designated Hedges	Number of Instruments		Notional Amount
Buy AUD / Sell USD Forward		1	A$	55,000
Buy USD / Sell AUD Forward		1	A$	55,000
Buy GBP / Sell USD Forward		1	£	23,200
Buy USD / Sell GBP Forward		1	£	23,200
Buy GBP / Sell EUR Forward		1	€	12,857

Valuation of Derivative Instruments

The following table summarizes the fair value of our derivative financial instruments ($ in thousands):

	Fair Value of Derivatives in an Asset Position(1) as of				Fair Value of Derivatives in a Liability Position(2) as of
	September 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Derivatives designated as hedging instruments:
Foreign exchange contracts	$	19,103	$	8,210	$	32	$	1,307
Interest rate derivatives		119		590		—		—
Total	$	19,222	$	8,800	$	32	$	1,307
Derivatives not designated as hedging instruments:
Foreign exchange contracts	$	5,787	$	1,116	$	3,960	$	1,618
Interest rate derivatives		—		—		—		—
Total	$	5,787	$	1,116	$	3,960	$	1,618
Total Derivatives	$	25,009	$	9,916	$	3,992	$	2,925

(1)	Included in other assets in our consolidated balance sheets.
(2)	Included in other liabilities in our consolidated balance sheets.

The following table presents the effect of our derivative financial instruments on our consolidated statements of operations ($ in thousands):

	Amount of Gain (Loss) Recognized in OCI on Derivatives					Location of Gain (Loss) Reclassified from Accumulated OCI into Income			Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
Derivatives in Hedging Relationships	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019						Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Net Investment Hedges
Foreign exchange contracts(1)	$	35,978	$	45,272			Interest Expense		$	—	$	—
Cash Flow Hedges
Interest rate derivatives		13		(152	)		Interest Expense	(2)		4		167
Total	$	35,991	$	45,120					$	4	$	167

(1)	During the three and nine months ended September 30, 2019, we received net cash settlements of $24.2 million and $31.1 million, respectively, on our foreign currency forward contracts. Those amounts are included as a component of accumulated other comprehensive loss on our consolidated balance sheets.
(2)	During the three months ended September 30, 2019, we recorded total interest and related expenses of $112.0 million, which was reduced by $4,000 related to income generated by our cash flow hedges. During the nine months ended September 30, 2019, we recorded total interest and related expenses of $347.5 million, which was reduced by $167,000 related to income generated by our cash flow hedges.

Credit-Risk Related Contingent Features

We have entered into agreements with certain of our derivative counterparties that contain provisions where if we were to default on any of our indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, we may also be declared in default on our derivative obligations. In addition, certain of our agreements with our derivative counterparties require that we post collateral to secure net liability positions. As of September 30, 2019, we were in a net asset position with each such derivative counterparty, and posted collateral of $2.3 million under these derivative contracts. As of December 31, 2018, we were in a net asset position with each such derivative counterparty and did not have any collateral posted under these derivative contracts.