Derivative Financial Instruments

12 Months Ended

Dec. 31, 2020

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.

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 includes interest rate caps, and may also include interest rate swaps, 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):

December 31, 2020
Interest Rate Derivatives	Number of Instruments	Notional Amount		Strike			Index	Wtd.-Avg. Maturity         (Years)
Interest Rate Caps	2	C$	38,293		1.0	%	CDOR	0.8
December 31, 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	0.7
Interest Rate Caps	1	C$	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 December 31, 2020, we estimate that an additional $10,000 will be reclassified from accumulated other comprehensive income (loss) as an increase to interest expense.

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. 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. During the three months ended June 30, 2020, we entered into foreign currency forward contracts with aggregate notional amounts of €620.4 million, £530.2 million, A$92.8 million, and C$24.4 million.

Designated 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, 2020				December 31, 2019
Foreign Currency Derivatives	Number of Instruments	Notional Amount		Foreign Currency Derivatives		Number of Instruments	Notional Amount
Buy USD / Sell EUR Forward	8	€	754,722		Buy USD / Sell GBP Forward	4	£	527,100
Buy USD / Sell GBP Forward	4	£	372,487		Buy USD / Sell EUR Forward	5	€	525,600
Buy USD / Sell AUD Forward	1	A$	92,800		Buy USD / Sell AUD Forward	3	A$	135,600
Buy USD / Sell CAD Forward	1	C$	26,200		Buy USD / Sell CAD Forward	1	C$	23,200

Non-designated Hedges of Foreign Currency Risk

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

December 31, 2020					December 31, 2019
Non-designated Hedges	Number of Instruments		Notional Amount		Non-designated Hedges	Number of Instruments		Notional Amount
Buy EUR / Sell GBP Forward		2	£	146,207	Buy CAD / Sell USD Forward		1	C$	15,900
Buy USD / Sell EUR Forward		1	€	8,410	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

Financial Statement Impact of Hedges of Foreign Currency Risk

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

				Increase (Decrease) to Interest Income and Interest Expense Recognized from Foreign Exchange Contracts
Foreign Exchange Contracts in Hedging Relationships	Location of Income (Expense) Recognized			Year Ended December 31, 2020			Year Ended December 31, 2019		Year Ended December 31, 2018
Designated Hedges		Interest Income	(1)	$	4,382		$	—	$	—
Non-Designated Hedges		Interest Income	(1)		(522	)		—		—
Non-Designated Hedges		Interest Expense	(2)		(4,357	)		1,060		23
Total				$	(497	)	$	1,060	$	23

(1) Represents the forward points earned on our foreign currency forward contracts, which reflect the interest rate differentials between the applicable base rate for our foreign currency investments and USD LIBOR. These forward contracts effectively convert the rate exposure to USD LIBOR, resulting in additional interest income earned in U.S. dollar terms.

(2) Represents the spot rate movement in our non-designated hedges, which are marked-to-market and recognized in interest expense.

Valuation and Other Comprehensive Income

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
	December 31, 2020		December 31, 2019		December 31, 2020		December 31, 2019
Derivatives designated as hedging instruments:
Foreign exchange contracts	$	521	$	—	$	55,758	$	41,728
Interest rate derivatives		1		96		—		—
Total	$	522	$	96	$	55,758	$	41,728
Derivatives not designated as hedging instruments:
Foreign exchange contracts	$	—	$	983	$	3,157	$	535
Interest rate derivatives		—		—		—		—
Total	$	—	$	983	$	3,157	$	535
Total Derivatives	$	522	$	1,079	$	58,915	$	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):

Derivatives in Hedging Relationships	Amount of (Loss) Gain Recognized in OCI on Derivatives									Location of Gain (Loss) Reclassified from			Amount of Loss Reclassified from Accumulated OCI into Income
	Year Ended December 31,									Accumulated			Year Ended December 31,
	2020			2019			2018			OCI into Income			2020		2019		2018
Net Investment Hedges
Foreign exchange contracts(1)	$	(59,609	)	$	(5,592	)	$	40,372			Interest Expense		$	—	$	—	$	—
Cash Flow Hedges
Interest rate derivatives		(94	)		(144	)		(8	)		Interest Expense	(2)		7		195		563
Total	$	(59,703	)	$	(5,736	)	$	40,364					$	7	$	195	$	563

(1) During the year ended December 31, 2020, we paid net cash settlements of $43.0 million on our foreign currency contracts. During the years ended December 31, 2019, and December 31, 2018, we received net cash settlements of $43.1 million and $29.1 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 years ended December 31, 2020, December 31, 2019, and December 31, 2018, we recorded total interest and related expenses of $347.5 million, $458.5 million, and $359.6 million, respectively, which were reduced by $7,000, $195,000, and $563,000, 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 December 31, 2020, we were in a net liability position with each such derivative counterparty and posted collateral of $51.1 million under these derivative contracts, which amount is included in other assets on our consolidated balance sheet. 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, which amount is included in other assets on our consolidated balance sheet.