Derivative Financial Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments and Hedging Activities

Foreign Currency Derivatives

The Company writes derivatives, primarily foreign currency forward contracts, option contracts, and swaps, mostly with small and medium size enterprises that are customers and derives a currency spread from this activity. Derivative transactions include:


•	Forward contracts, which are commitments to buy or sell at a future date a currency at a contract price and will be settled in cash.


•	Option contracts, which gives the purchaser the right, but not the obligation, to buy or sell within a specified time a currency at a contracted price that may be settled in cash.


•	Swap contracts, which are commitments to settlement in cash at a future date or dates, usually on an overnight basis.

The credit risk inherent in derivative agreements represents the possibility that a loss may occur from the nonperformance of a counterparty to the agreements. The Company performs a review of the credit risk of these counterparties at the inception of the contract and on an ongoing basis. The Company also monitors the concentration of its contracts with any individual counterparty against limits at the individual counterparty level. The Company anticipates that the counterparties will be able to fully satisfy their obligations under the agreements, but takes action when doubt arises about the counterparties' ability to perform. These actions may include requiring customers to post or increase collateral, and for all counterparties, the possible termination of the related contracts. The Company does not designate any of its foreign exchange derivatives as hedging instruments in accordance with ASC 815.

The aggregate equivalent U.S. dollar notional amount of foreign exchange derivative customer contracts held by the Company as of September 30, 2019 and December 31, 2018 (in millions) is presented in the table below.



	Notional
	September 30, 2019		December 31, 2018
Foreign exchange contracts:
Swaps	$	260.6	$	929.5
Futures, forwards and spot	3,761.8		3,249.9
Written options	4,354.5		3,688.8
Purchased options	3,485.9		2,867.2
Total	$	11,862.8	$	10,735.4

Notional amounts do not reflect the netting of offsetting trades, although these offsetting positions may result in minimal overall market risk. Aggregate derivative notional amounts can fluctuate from period to period in the normal course of business based on market conditions, levels of customer activity and other factors. The majority of customer foreign exchange contracts are written in currencies such as the U.S. Dollar, Canadian Dollar, British Pound, Euro and Australian Dollar.

The following table summarizes the fair value of foreign currency derivatives reported in the Unaudited Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 (in millions):



	September 30, 2019								December 31, 2018
	Fair Value, Gross				Fair Value, Net				Fair Value, Gross				Fair Value, Net
	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
Derivatives - undesignated:
Foreign exchange contracts	99.9		99.9		50.9		50.9		109.5		112.9		68.8		72.1
Cash collateral	7.1		13.5		7.1		13.5		9.6		73.1		9.6		73.1
Total net of cash collateral	$	92.8	$	86.4	$	43.8	$	37.4	$	99.9	$	39.8	$	59.2	$	(1.0	)

The fair values of derivative assets and liabilities associated with contracts, which include netting terms that the Company believes to be enforceable have been recorded net within the Unaudited Consolidated Balance Sheets. The Company recognizes all derivative assets, net in prepaid expense and other current assets and all derivative liabilities, net in other current liabilities, after netting at the customer level, as right of offset exists, in its Unaudited Consolidated Balance Sheets at their fair value. The gain or loss on the change in fair value of derivative contracts is recognized immediately within revenues, net in the Unaudited Consolidated Statements of Income. The Company receives cash from customers as collateral for trade exposures, which is recorded within cash and cash equivalents and customer deposits in the Unaudited Consolidated Balance Sheet. The customer has the right to recall their collateral in the event exposures move in their favor, they unwind all outstanding trades or they cease to do business with the Company. The Company does not offset fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral.

Cash Flow Hedges

On January 22, 2019, the Company entered into three interest rate swap cash flow contracts (the "swap contracts"). The objective of these swap contracts is to reduce the variability of cash flows in the previously unhedged interest payments associated with $2.0 billion of variable rate debt, the sole source of which is due to changes in the LIBOR benchmark interest rate. As of September 30, 2019, the Company had the following outstanding interest rate derivatives that qualify as hedging instruments and are designated as cash flow hedges of interest rate risk (in millions):



	Notional Amount as of September 30, 2019		Fixed Rates	Maturity Date
Interest Rate Derivative:
Interest Rate Swap	$	1,000	2.56%	1/31/2022
Interest Rate Swap	500		2.56%	1/31/2023
Interest Rate Swap	500		2.55%	12/19/2023

For each of these swap contracts, the Company will pay a fixed monthly rate and receive one month LIBOR.

The table below presents the fair value of the Company’s interest rate swap contracts, as well as their classification on the Unaudited Consolidated Balance Sheets, as of September 30, 2019 (in millions). See footnote 4 for additional information on the fair value of the Company’s swap contracts.

The table below displays the effect of the Company’s derivative financial instruments in the Unaudited Consolidated Statement of Income and other comprehensive loss for the nine months ended September 30, 2019 (in millions):



	2019
Interest Rate Swaps:
Amount of loss recognized in other comprehensive income on derivatives, net of tax of $17.0 million	$	52.5
Amount of loss reclassified from accumulated other comprehensive income into interest expense	2.2

The estimated net amount of the existing losses expected to be reclassified into earnings within the next 12 months is approximately $18.4 million at September 30, 2019.

As of September 30, 2019

Balance Sheet Location

Fair Value

Derivatives designated as cash flow hedges:

Swap contracts

Other liabilities