Derivative Financial Instruments

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

9. 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 may 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. During the three months ended March 31, 2020, we terminated all of our outstanding foreign currency forward contracts, with aggregate notional amounts of

€

552.1 million, £365.5

million, A$134.8

million, and C$23.7 million. Our exposure to these currencies continues to be reduced by our local-currency borrowings investments denominated in currencies other than the U.S. dollar.

As of March 31, 2020, we did not have any outstanding foreign exchange derivatives designated as net investment hedges of foreign currency risk. The following table details our outstanding foreign exchange derivatives that were designated as net investment hedges of foreign currency risk (notional amount in thousands):


December 31, 2019
Foreign Currency	Number of		Notional
Derivatives	Instruments		Amount
Sell GBP Forward		4	£	527,100
Sell EUR Forward		5	€	525,600
Sell AUD Forward		3	A$	135,600
Sell CAD Forward		1	C$	23,200

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):

March 31, 2020

Interest Rate Derivatives

Number of
Instruments

Notional
Amount

Strike

Index

Wtd.-Avg.

Maturity (Years)

Interest Rate Swaps

17,273

1.0%

CDOR

0.4

Interest Rate Caps

21,387

3.0%

CDOR

0.7

December 31, 2019

Interest Rate Derivatives

Number of
Instruments

Notional
Amount

Strike

Index

Wtd.-Avg.

Maturity (Years)

Interest Rate Swaps

17,273

1.0%

CDOR

0.7

Interest Rate Caps

21,387

3.0%

CDOR

1.0

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 March 31, 2020, we estimate that an additional $5,000 will be reclassified from accumulated other comprehensive income (loss) as an increase to interest

expense

Non-designated

Hedges

As of March 31, 2020, we did not have any outstanding

non-designated

hedges of foreign currency risk. During the three months ended March 31, 2020 and March 31, 2019, we recorded

losses

of $1.2 million

and

gains

$660,000, respectively, related to

non-designated

hedges that were reported as a component of interest expense in our consolidated financial statements.

The following tables summarize our

non-designated

hedges (notional amount in thousands):


December 31, 2019
	Number of	Notional
Non-designated Hedges	Instruments	Amount
Buy CAD / Sell USD Forward	1	C$	15,900
Buy USD / Sell CAD Forward	1	C$	15,900
Buy GBP / Sell EUR Forward	1	€	12,857
Buy AUD / Sell USD Forward	1	A$	10,000
Buy USD / Sell AUD Forward	1	A$	10,000

Valuation of Derivative Instruments

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


	Fair Value of Derivatives in an				Fair Value of Derivatives in a
	Asset Position (1) as of				Liability Position (2) as of
	March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
Derivatives designated as hedging instruments:
Interest rate derivatives	$	1	$	96	$	1	$	—
Foreign exchange contracts		—		—		—		41,728

Total	$	1	$	96	$	1	$	41,728

Derivatives not designated as hedging instruments:
Interest rate derivatives	$	—	$	—	$	—	$	—
Foreign exchange contracts		—		983		—		535

Total	$	—	$	983	$	—	$	535

Total Derivatives	$	1	$	1,079	$	1	$	42,263

(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			Amount of Gain Reclassified from Accumulated OCI into Income
	Three Months Ended March 31,						Reclassified from Accumulated			Three Months Ended March 31,
Derivatives in Hedging Relationships	2020			2019			OCI into Income			2020		2019
Net Investment Hedges
Foreign exchange contracts (1)	$	104,086		$	(1,646	)		Interest Expense		$	—	$	—
Cash Flow Hedges
Interest rate derivatives		(67	)		(134	)		Interest Expense	(2)		28		168

Total	$	104,019		$	(1,780	)				$	28	$	168


(1)		During the three months ended March 31, 2020 and 2019, we received net cash settlements of $61.7 million and paid $2.0 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 March 31, 2020 and 2019, we recorded total interest and related expenses of $104.2 million and $118.7 million, respectively, which were reduced by $28,000 and $168,000, respectively, 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 March 31, 2020, we were in a net

liabilit

position with one such derivative counterparty and did not have any collateral posted under the derivative contract. As of December 31, 2019, we were in a net liability position with each such derivative counterparty and posted collateral of $30.8 million under these derivative contracts.