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Derivatives and Hedging Instruments
 12 Months Ended
Dec. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Hedging Instruments
Note 3: Derivatives and Hedging Instruments
The Company may periodically enter into derivative financial instruments to manage risks related to interest rates and foreign currency. Certain of the Company’s derivative financial instruments qualify for hedge accounting treatment.
The following table summarizes the fair value of derivative instruments as recorded in the Company’s consolidated statements of financial condition (in thousands):
 December 31, 2020December 31, 2019
Balance Sheet
Location		Fair ValueBalance Sheet
Location		Fair Value
Derivatives designated as hedging instruments:
Interest rate cap contractsOther assets$659 Other assets$2,460 
Foreign currency exchange contractsOther assets— Other assets443 
Interest rate swap agreementsOther liabilities(5,232)Other liabilities(9,116)
Cross-currency swap agreementsOther assets11,578 Other assets— 
Derivatives not designated as hedging instruments:
Foreign currency exchange contractsOther assets— Other assets1,030 
Derivatives Designated as Hedging Instruments
The Company has operations in foreign countries, which expose the Company to foreign currency exchange rate fluctuations due to transactions denominated in foreign currencies. To mitigate a portion of this risk, the Company enters into derivative financial instruments, principally foreign currency forward contracts with financial counterparties. The Company adjusts the level and use of derivatives as soon as practicable after learning that an exposure has changed and reviews all exposures and derivative positions on an ongoing basis.
The Company held certain foreign currency forward contracts designated as cash flow hedging instruments that matured in June 2020. As of December 31, 2020, the Company had no outstanding forward contracts that were designated as cash flow hedging instruments. No gains or losses were reclassified from OCI into earnings as a result of forecasted transactions that failed to occur during the years ended December 31, 2020, 2019, or 2018.
The Company may periodically enter into interest rate swap agreements to reduce its exposure to fluctuations in interest rates on variable interest rate debt and their impact on earnings and cash flows. Under the swap agreements, the Company receives floating interest rate payments and makes interest payments based on fixed interest rates. The Company designates its interest rate swap instruments as cash flow hedges. Previously, the Company held four interest rate swap agreements that hedged the risk of USD-LIBOR interest rate fluctuations for the Encore revolving credit facility and term loan facility. As part of the financing transactions completed in September 2020, the Company settled two of the interest rate swap agreements. As of December 31, 2020, there were two interest rate swap agreements outstanding with a total notional amount of $196.4 million. The Company expects to reclassify approximately $8.7 million of net derivative loss from OCI into earnings relating to interest rate swaps within the next 12 months.
In connection with the financing transactions discussed above, the Company entered into cross-currency swap agreements, which are used to manage foreign currency exchange risk by converting fixed-rate Euro-denominated borrowings including periodic interest payments and the payment of principal at maturity to fixed-rate USD debt and are accounted for as cash flow hedges. As of December 31, 2020, there were four cross-currency swap agreements outstanding with a total notional amount of €350.0 million (approximately $426.8 million based on an exchange rate of $1.00 to €0.82, the exchange rate as of
December 31, 2020). The Company expects to reclassify approximately $3.8 million of net derivative loss from OCI into earnings relating to cross-currency swaps within the next 12 months.
Previously, the Company held two interest rate cap contracts (the “2018 Caps”) that hedged the risk of GBP-LIBOR interest rate fluctuations for the Cabot Securitisation Senior Facility interest payments. In February 2020, the Company settled the 2018 Caps and ceased the hedge relationship, which resulted in the reclassification of the associated other comprehensive loss balance to interest expense for approximately $2.5 million during the first quarter of 2020.
As of December 31, 2020, the Company held two interest rate cap contracts with a notional amount of approximately $965.8 million that are used to manage its risk related to interest rate fluctuations on the Company’s variable interest rate bearing debt. The interest rate cap hedging the fluctuations in three-month EURIBOR floating rate debt (“2019 Cap”) has a notional amount of €400.0 million (approximately $487.7 million based on an exchange rate of $1.00 to €0.82, the exchange rate as of December 31, 2020) and matures in 2024. The interest rate cap hedging the fluctuations in sterling overnight index average (“SONIA”) bearing debt (“2020 Cap”) has a notional amount of £350.0 million (approximately $478.1 million based on an exchange rate of $1.00 to £0.73, the exchange rate as of December 31, 2020) and matures in 2023. The 2019 Cap is structured as a series of European call options (“Caplets”) such that if exercised, the Company will receive a payment equal to 3-months EURIBOR on a notional amount equal to the hedged notional amount net of a fixed strike price. The 2020 Cap is also structured as a series of Caplets such that if exercised, the Company will receive a payment equal to SONIA on a notional amount equal to the hedged notional amount net of a fixed strike price. Each interest rate reset date, the Company will elect to exercise the Caplet or let it expire. The potential cash flows from each Caplet are expected to offset any variability in the cash flows of the interest payments to the extent EURIBOR or SONIA exceeds the strike price of the Caplets. The Company expects the hedge relationships to be highly effective and designates the 2019 Cap and 2020 Cap as cash flow hedge instruments. The Company expects to reclassify approximately $0.5 million of net derivative loss from OCI into earnings relating to interest rate caps within the next 12 months.
The following table summarizes the effects of derivatives in cash flow hedging relationships designated as hedging instruments in the Company’s consolidated financial statements during the periods presented (in thousands):
 Derivatives Designated as Hedging InstrumentsGain (Loss)
Recognized in OCI		Location of Gain (Loss) Reclassified from OCI into IncomeGain (Loss)
Reclassified
from OCI into
Income 
Year Ended December 31,Year Ended December 31,
2020201920202019
Foreign currency exchange contracts$(341)$1,100 Salaries and employee benefits$49 $383 
Foreign currency exchange contracts(44)(56)General and administrative expenses11 (19)
Interest rate swap agreements(7,441)(6,347)Interest expense(7,893)(2,560)
Interest rate cap contracts(3,001)(1,752)Interest expense(2,846)146 
Cross-currency swap agreements10,503 — Interest expense / Other expense10,121 — 
Derivatives Not Designated as Hedging Instruments
The Company enters into currency exchange forward contracts to reduce the effects of currency exchange rate fluctuations between the British Pound and Euro. These derivative contracts generally mature within one to three months and are not designated as hedge instruments for accounting purposes. The Company continues to monitor the level of exposure of the foreign currency exchange risk and may enter into additional short-term forward contracts on an ongoing basis. The gains or losses on these derivative contracts are recognized in other income or expense based on the changes in fair value. As of December 31, 2020, the Company had no outstanding currency exchange forward contracts that were not designated as cash flow hedging instruments.
In May 2018, in anticipation of the completion of the purchase of all of the outstanding equity of CCM not owned by Encore (the “Cabot Transaction”), Encore entered into a foreign exchange forward contract with a notional amount of £176.0 million, which was approximately the amount of cash consideration for the Cabot Transaction. The forward contract settled in August 2018 at a total loss of $9.3 million. This loss was substantially offset by a decrease in the final purchase price in U.S. dollars for the Cabot Transaction.
The following table summarizes the effects of derivatives not designated as hedging instruments on the Company’s consolidated statements of operations during the periods presented (in thousands):
Derivatives Not Designated as Hedging InstrumentsLocation of Gain (Loss) Recognized in Income on DerivativeAmount of Gain (Loss) Recognized in Income
Year ended December 31,
202020192018
Foreign currency exchange contractsOther expense$3,564 $(2,959)$(9,221)
Interest rate cap contractsInterest expense— — (1,568)