Derivatives

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

We utilize derivative instruments, including interest rate swap agreements and foreign currency hedging contracts, to manage our exposure to interest rate risk and foreign currency fluctuations. We only hold such instruments for economic hedging purposes, not for speculative or trading purposes. Our derivative instruments are transacted only with highly-rated institutions, which reduces our exposure to credit risk in the event of nonperformance.

Interest Rate Swaps

We are exposed to interest rate risk associated with fluctuations in interest rates on the floating-rate Term Loan Facility. The objective in using interest rate derivatives is to manage our exposure to interest rate movements. To accomplish this objective, we have entered into interest rate swap agreements as part of our interest rate risk management strategy. Interest rate swaps involve the receipt of variable amounts from a counterparty in exchange for the company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

In December 2016, we entered into seven floating-to-fixed interest rate swap agreements to manage our risk from interest rate fluctuations associated with the floating-rate Term Loan Facility. The swap agreements became effective on February 3, 2017 with an aggregate notional amount of $1.5 billion. Two swap agreements matured in 2018, one agreement matured during the nine months ended September 30, 2019, and one agreement matured during the nine months ended September 30, 2020. The remaining three swap agreements in effect as of September 30, 2020 have an aggregate notional amount of $1.05 billion and mature over the next two years. On a quarterly basis, we net settle with the counterparty for the difference between the fixed rate specified in each swap agreement, ranging from 1.7625% to 1.9040%, and the variable rate based upon the three-month LIBOR as applied to the notional amount of the swap.

In December 2018, we entered into four additional floating-to-fixed interest rate swap agreements with an aggregate notional amount of $1.35 billion and a maturity date of November 3, 2023. These swap agreements are forward-starting, and as of September 30, 2020, two swap agreements, with an aggregate notional amount of $300 million, were effective. The remaining swap agreements become effective each year thereafter to coincide with the maturity dates of the outstanding December 2016 swap agreements. On a quarterly basis, we net settle with the counterparty for the difference between the fixed rate specified in each swap agreement, ranging from 2.7350% to 2.7490%, and the variable rate based upon the three-month LIBOR as applied to the notional amount of the swap.

As of December 31, 2019, none of our interest rate swap agreements were designated as cash flow hedges of interest rate risk for accounting purposes, therefore, all changes in the fair value of the interest rate swap agreements were recorded to "Interest expense" in the Consolidated Statements of Comprehensive Loss. On January 9, 2020, we designated certain of our swaps as cash flow hedges. On the designation date, the cash flow hedges were in a $39.9 million liability position ("off-market swap value"). The cash flow hedges were expected to be highly effective on the designation date and, on a quarterly basis, we perform retrospective and prospective assessments to determine whether the cash flow hedges continue to be highly effective, which we have deemed to be a dollar-offset ratio between 80% to 125%. As long as the cash flow hedges are highly effective, changes in fair value are recorded to "Accumulated other comprehensive income (loss)" in the Consolidated Balance Sheets and reclassified to "Interest expense" in the period when the underlying transaction affects earnings. The off-market swap value will be amortized as a reduction to "Interest expense" on a straight-line basis over the remaining term of each cash flow hedge. The income tax effects of cash flow hedges are released from "Accumulated other comprehensive income (loss)" in the period when the underlying transaction affects earnings. Any stranded income tax effects are released from “Accumulated other comprehensive income (loss)” into “Benefit (provision) for income taxes” under the portfolio approach. As of September 30, 2020, all of our cash flow hedges were highly effective.

Our interest rate swap agreements are recognized at fair value in the Consolidated Balance Sheets and are valued using pricing models that rely on market observable inputs such as yield curve data, which are classified as Level 2 inputs within the fair value hierarchy.

Foreign Currency Hedging Contracts

The majority of our customers are invoiced, and the majority of our expenses are paid, by us or our subsidiaries in the functional currency of our company or our subsidiaries, respectively. We also have exposure to foreign currency transaction gains and losses as the result of certain receivables due from our foreign subsidiaries. As such, the results of operations and cash flows of our foreign subsidiaries are subject to fluctuations in foreign currency exchange rates. The objective of our foreign currency hedging contracts is to manage our exposure to foreign currency movements. To accomplish this objective, we may enter into foreign currency forward contracts and collars. A forward contract is an agreement to buy or sell a quantity of a currency at a predetermined future date and at a predetermined exchange rate. A collar is a strategy that uses a combination of a purchased put option and a sold call option with equal premiums to hedge a portion of anticipated cash flows, or to limit possible gains or losses on an underlying asset or liability to a specific range. The put and call options have identical notional amounts and settlement dates.

In November 2018, we entered into one foreign currency forward contract. Under the terms of the contract, we sold £75 million at a rate of 1.3002 British pound sterling to U.S. dollar and received $97.5 million. This contract settled on November 29, 2019 and we received a final net payment of $0.8 million.

In November 2019, we entered into two foreign currency net-zero cost collar contracts with an aggregate notional amount of £100 million and a maturity date of November 30, 2020. Under the terms of the contracts, the British pound sterling to U.S. dollar exchange rate floats between 1.2375 and 1.3475. On March 26, 2020, we settled one of these contracts, with an aggregate notional amount of £50 million, and we received a final net payment of $1.9 million.

In March 2020, we entered into three foreign currency forward contracts to manage our exposure to movements in the British pound sterling, Euro and Mexican peso. All three contracts settled on June 30, 2020, and we made a final net payment of $1.7 million resulting from the following:

•We sold £32 million at a rate of 1.1902 British pound to U.S. dollar and received $38.1 million.

•We sold €6 million at a rate of 1.0921 Euro to U.S. dollar and received $6.6 million.

•We sold $2.1 million at a rate of 24.2040 U.S. dollar to Mexican peso and received Mex$50 million.

In June 2020, we entered into three foreign currency forward contracts to manage our exposure to movements in the British pound sterling, Euro and Mexican peso. All three contracts settled on September 30, 2020 and we made a final net payment of $1.6 million resulting from the following:

•We sold £32 million at a rate of 1.24095 British pound to U.S. dollar and received $39.7 million.

•We sold €6 million at a rate of 1.1241 Euro to U.S. dollar and received $6.7 million.

•We sold $2.2 million at a rate of 23.0330 U.S. dollar to Mexican peso and received Mex$50 million.

In September 2020, we entered into three foreign currency forward contracts to manage our exposure to movements in the British pound sterling, Euro and Mexican peso. All three contracts have a maturity date of December 31, 2020. On the maturity date, the following will occur:

•We will sell £32 million at a rate of 1.28495 British pound to U.S. dollar and receive $41.1 million.

•We will sell €6 million at a rate of 1.1684 Euro to U.S. dollar and receive $7.0 million.

•We will sell $2.2 million at a rate of 22.8340 U.S. dollar to Mexican peso and receive Mex$50 million.

These contracts are recognized at fair value in the Consolidated Balance Sheets and are valued using pricing models that rely on market observable inputs such as current exchange rates, which are classified as Level 2 inputs within the fair value hierarchy. We have not designated these contracts as cash flow hedges for accounting purposes, therefore, all changes in fair value are recorded in "Other income (expense), net."

Fair Values of Derivatives on the Consolidated Balance Sheets

The fair values of our derivatives and their location on the Consolidated Balance Sheets as of December 31, 2019 and September 30, 2020 were as follows:


		December 31, 2019				September 30, 2020
(In millions)		Assets		Liabilities		Assets		Liabilities
Derivatives not designated as hedging instruments	Location


Interest rate swaps	Other current liabilities	$	—	$	3.5	$	—	$	—
Interest rate swaps	Other non-current liabilities	—		33.1		—		—


Foreign currency contracts	Other current assets	1.4		—		0.5		—
Foreign currency contracts	Other current liabilities	—		2.9		—		0.3

Total		$	1.4	$	39.5	$	0.5	$	0.3

Derivatives designated as hedging instruments	Location


Interest rate swaps	Other current liabilities	$	—	$	—	$	—	$	21.8
Interest rate swaps	Other non-current liabilities	—		—		—		69.9
Total		$	—	$	—	$	—	$	91.7

For financial statement presentation purposes, we do not offset assets and liabilities under master netting arrangements and all amounts above are presented on a gross basis. The following table, however, is presented on a net asset and net liability basis:


	December 31, 2019						September 30, 2020
(In millions)	Gross Amounts on Balance Sheet		Effect of Counter-Party Netting		Net Amounts		Gross Amounts on Balance Sheet		Effect of Counter-Party Netting		Net Amounts
Assets

Foreign currency contracts	$	1.4	$	(1.4)	$	—	$	0.5	$	(0.5)	$	—
Total	$	1.4	$	(1.4)	$	—	$	0.5	$	(0.5)	$	—

Liabilities
Interest rate swaps	$	36.6	$	—	$	36.6	$	91.7	$	(0.2)	$	91.5
Foreign currency contracts	2.9		(1.4)		1.5		0.3		(0.3)		—
Total	$	39.5	$	(1.4)	$	38.1	$	92.0	$	(0.5)	$	91.5

Effect of Derivatives on the Consolidated Statements of Comprehensive Loss

The effect of our derivatives and their location on the Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2019 and 2020 was as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)		2019		2020		2019		2020
Derivatives not designated as hedging instruments	Location
Interest rate swaps	Interest expense	$	(11.8)	$	—	$	(61.0)	$	(3.2)

Foreign currency contracts	Other income (expense), net	3.4		(3.3)		4.3		0.3

Derivatives designated as hedging instruments	Location
Interest rate swaps	Interest expense	$	—	$	(4.4)	$	—	$	(6.1)

Interest expense was $80.9 million and $68.3 million for the three months ended September 30, 2019 and 2020, respectively, and $270.7 million and $209.2 million for the nine months ended September 30, 2019 and 2020, respectively. As of September 30, 2020, the amount of cash flow hedge losses included within "Accumulated other comprehensive income (loss)" that is expected to be reclassified as an increase to "Interest expense" over the next 12 months is approximately $19.2 million. See Note 14, "Accumulated Other Comprehensive Income (Loss)," for information regarding changes in fair value of our derivatives designated as hedging instruments.

Credit-risk-related Contingent Features

We have agreements with interest rate swap counterparties that contain a provision whereby if we default on any of our material indebtedness, then we could also be declared in default of our interest rate swap agreements. As of September 30, 2020, our interest rate swap agreements with an aggregate fair value of $91.7 million were in a net liability position. However, if we were in default, our master netting arrangements with certain of our interest rate swap counterparties contain provisions which could result in net settlement of all outstanding agreements with an aggregate fair value of $91.5 million in a net liability position.