Derivative Instruments and Hedging Activities

9 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company is exposed to fluctuations in the applicable exchange rate on its investments in operations outside the U.S. While the Company does not actively hedge against changes in foreign currency, the Company has mitigated its exposure from its investments in its European operations by denominating a portion of its debt in euros. At March 31, 2020, the Company had euro-denominated debt outstanding of $894.1 million that is designated and qualifies as a hedge of a net investment in foreign operations. For non-derivatives designated and qualifying as net investment hedges, the translation gains or losses are reported in accumulated other comprehensive income/(loss) as part of the cumulative translation adjustment. The non-hedge portions of the euro-denominated debt translation gains or losses are reported in the consolidated statement of operations. The following table includes net investment hedge activity during the three and nine months ended March 31, 2020 and 2019.

	Three Months Ended   March 31,				Nine Months Ended   March 31,
(Dollars in millions)	2020		2019		2020		2019
Unrealized foreign exchange gain/(loss) within other      comprehensive income	$	3.7	$	5.9	$	17.5	$	17.3
Unrealized foreign exchange gain/(loss) within statement      of operations	$	1.9	$	2.9	$	7.7	$	9.8

The net accumulated gain of the instrument designated as a hedge as of March 31, 2020 within other comprehensive income/(loss) was approximately $77.3 million. Amounts are reclassified out of accumulated other comprehensive income/(loss) into earnings when the entity to which the gains and losses relate is either sold or substantially liquidated.

Refer to Note 19, Subsequent Events for details related to an interest rate swap entered into in April 2020.

2019 Derivative Liability

As discussed in Note 14, Redeemable Preferred Stock—Series A Preferred, in May 2019, the Company issued shares of Series A Preferred Stock in exchange for net proceeds of $646.3 million after taking into account the $3.7 million issuance cost.

The dividend rate used to determine the amount of the quarterly dividend payable on shares of the Series A Preferred Stock is subject to adjustment so as to provide holders of shares of Series A Preferred Stock with certain protections against a decline in the trading price of shares of Common Stock. The Company determined that this feature should be accounted for as a derivative liability, since the feature fluctuates inversely to changes in the trading price and is also linked to the performance of the S&P 500 stock index. Accordingly, the Company bifurcated the adjustable dividend feature from the remainder of the Series A Preferred Stock and accounted for this feature as a derivative liability at fair value. The Company will recognize changes in the fair value of the derivative liability in the consolidated statements of operations for each reporting period. The fair value was determined using an option pricing methodology, specifically both a Monte Carlo simulation and a binomial lattice model. The methodology incorporates the terms and conditions of the preferred stock arrangement, historical stock price volatility, the risk-free interest rate, a credit spread based on the yield indexes of high-yield bonds, and the trading price of shares of the Common Stock. The calculation of the estimated fair value of the derivative liability is highly sensitive to changes in unobservable inputs, such as the expected volatility and the Company's specific credit spread.

The Company recorded a loss of $24.9 million on the change in the estimated fair value of the derivative liability from July 1, 2019 through March 31, 2020, primarily related to the volatility in the risk-free interest rate used to estimate the fair value, which is reflected as a non-operating expense in the consolidated statements of operations. The fair value of the derivative liability as of March 31, 2020 was $51.7 million.

The fair value is classified as Level 3 in the fair value hierarchy due to the significant management judgment required for the assumptions underlying the calculation of value. The following table sets forth a summary of changes in the estimated fair value of the derivative liability:

(Dollars in millions)	Fair Value Measurements of Series A Preferred Stock Derivative Liability Using Significant Unobservable Inputs (Level 3)
Balance at July 1, 2019	$	26.8
Change in estimated fair value of Series A Preferred Stock derivative liability	24.9
Balance at March 31, 2020	$	51.7