Fair Value Disclosure

3 Months Ended

Mar. 31, 2020

Fair Value Disclosures [Abstract]

Fair Value Disclosure

Fair Value Disclosure

The assets and liabilities that GATX records at fair value on a recurring basis consisted entirely of derivatives at March 31, 2020 and December 31, 2019.

In addition, we review long-lived assets, such as operating assets and facilities, as well as goodwill, whenever circumstances indicate that the carrying amount of these assets may not be recoverable or when assets may be classified as held for sale. We considered COVID-19 as part of our assessment during the quarter and determined there were no material impacts on our final conclusions. We will continue to monitor our long-lived assets, equity method investments, and goodwill for indicators of impairment as COVID-19 continues to impact the global economy.

Derivative Instruments

Fair Value Hedges

We use interest rate swaps to manage the fixed-to-floating rate mix of our debt obligations by converting a portion of our fixed rate debt to floating rate debt. For fair value hedges, we recognize changes in fair value of both the derivative and the hedged item as interest expense. We had five instruments outstanding with an aggregate notional amount of $300.0 million as of March 31, 2020 with maturities ranging from 2021 to 2022 and eight instruments outstanding with an aggregate notional amount of $450.0 million as of December 31, 2019 with maturities ranging from 2020 to 2022.

Cash Flow Hedges

We use Treasury rate locks and swap rate locks to hedge our exposure to interest rate risk on anticipated transactions. We also use currency swaps and put/call options to hedge our exposure to fluctuations in the exchange rates of foreign currencies for certain loans and operating expenses denominated in non-functional currencies. We had 18 instruments outstanding with an aggregate notional amount of $281.8 million as of March 31, 2020 that mature from 2020 to 2022 and seven instruments outstanding with an aggregate notional amount of $336.5 million as of December 31, 2019 with maturities ranging from 2020 to 2022. Within the next 12 months, we expect to reclassify $1.7 million ($1.2 million after-tax) of net losses on previously terminated derivatives from accumulated other comprehensive income (loss) to interest expense or operating lease expense, as applicable. We reclassify these amounts when interest and operating lease expense on the related hedged transactions affect earnings.

Non-Designated Derivatives

We do not hold derivative financial instruments for purposes other than hedging, although certain of our derivatives are not designated as accounting hedges. We recognize changes in the fair value of these derivatives in other (income) expense immediately.

Certain of our derivative instruments contain credit risk provisions that could require us to make immediate payment on net liability positions in the event that we default on certain outstanding debt obligations. The aggregate fair value of our derivative instruments with credit risk related contingent features that are in a liability position as of March 31, 2020 was $2.4 million. We are not required to post any collateral on our derivative instruments and do not expect the credit risk provisions to be triggered.

In the event that a counterparty fails to meet the terms of an interest rate swap agreement or a foreign exchange contract, our exposure is limited to the fair value of the swap, if in our favor. We manage the credit risk of counterparties by transacting with institutions that we consider financially sound and by avoiding concentrations of risk with a single counterparty. We believe that the risk of non-performance by any of our counterparties is remote.

The following tables show our derivative assets and liabilities that are measured at fair value (in millions):

	Balance Sheet Location	Fair Value March 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Derivative Assets
Interest rate contracts (1)	Other assets	$	8.3	$	—	$	8.3	$	—
Foreign exchange contracts (1)	Other assets	0.9		—		0.9		—
Foreign exchange contracts (2)	Other assets	1.5		—		1.5		—
Total derivative assets		$	10.7	$	—	$	10.7	$	—
Derivative Liabilities
Interest rate contracts (1)	Other liabilities	$	0.3	$	—	$	0.3	$	—
Foreign exchange contracts (1)	Other liabilities	2.1		—		2.1		—
Total derivative liabilities		$	2.4	$	—	$	2.4	$	—

	Balance Sheet Location	Fair Value December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Derivative Assets
Interest rate contracts (1)	Other assets	$	1.4	$	—	$	1.4	$	—
Foreign exchange contracts (1)	Other assets	6.9		—		6.9		—
Foreign exchange contracts (2)	Other assets	0.2		—		0.2		—
Total derivative assets		$	8.5	$	—	$	8.5	$	—
Derivative Liabilities
Interest rate contracts (1)	Other liabilities	$	0.6	$	—	$	0.6	$	—
Foreign exchange contracts (1)	Other liabilities	7.0		—		7.0		—
Foreign exchange contracts (2)	Other liabilities	6.0		—		6.0		—
Total derivative liabilities		$	13.6	$	—	$	13.6	$	—

_________

(1) Designated as hedges.

(2) Not designated as hedges.

We value derivatives using a pricing model with inputs (such as yield curves and foreign currency rates) that are observable in the market or that can be derived principally from observable market data. As of March 31, 2020 and December 31, 2019, all derivatives were classified as Level 2 in the fair value hierarchy. There were no derivatives classified as Level 1 or Level 3.

The following table shows the amounts recorded on the balance sheet related to cumulative basis adjustments for fair value hedges as of March 31, 2020 and December 31, 2019 (in millions).

	Carrying Amount of the Hedged Assets/(Liabilities)						Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)
Line Item in the Balance Sheet in Which the Hedged Item is Included	March 31 2020			December 31 2019			March 31 2020		December 31 2019
Recourse debt	$	(304.9	)	$	(449.9	)	$	8.3	$	1.4

The following table shows the impacts of our derivative instruments on our statement of comprehensive income for the three months ended March 31, 2020 and 2019 (in millions):

	Amount of Loss (Gain) Recognized in Other Comprehensive Income						Location of Loss (Gain) Reclassified from Accumulated Other Comprehensive Income into Income	Amount of Loss (Gain) Reclassified from Accumulated Other Comprehensive Income into Income
	Three Months Ended March 31							Three Months Ended March 31
Derivative Designation	2020			2019				2020			2019
Derivatives in cash flow hedging relationships:
Interest rate contracts	$	(0.1	)	$	—		Interest expense	$	0.4		$	0.8
Foreign exchange contracts	(3.8		)	(12.9		)	Other (income) expense	(5.3		)	(11.0		)
Total	$	(3.9	)	$	(12.9	)	Total	$	(4.9	)	$	(10.2	)

The following table shows the impact of our fair value and cash flow hedge accounting relationships, as well as the impact of our non-designated derivatives, on the statement of comprehensive income for the three months ended March 31, 2020 and 2019 (in millions):

	Location and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
	Three Months Ended March 31						Three Months Ended March 31
	2020						2019
	Interest (expense), net			Other income (expense)			Interest (expense), net			Other income (expense)
Total amounts of income and expense presented in the statements of comprehensive income in which the effects of fair value or cash flow hedges are recorded	$	(46.8	)	$	(8.2	)	$	(46.5	)	$	(3.2	)
Gain (loss) on fair value hedging relationships
Interest rate contracts:
Hedged items	(6.9		)	—			(3.2		)	—
Derivatives designated as hedging instruments	6.9			—			3.2			—
Gain (loss) on cash flow hedging relationships
Interest rate contracts:
Amount of gain (loss) reclassified from accumulated other comprehensive income into income	(0.4		)	—			(0.8		)	—
Foreign exchange contracts:
Amount of gain (loss) reclassified from accumulated other comprehensive income into income (1)	—			5.3			—			11.0
Gain (loss) on non-designated derivative contracts	—			6.9			—			(0.8		)

_________

(1) These amounts are substantially offset by foreign currency remeasurement adjustments on related hedged instruments, also recognized in other income (expense).

Other Financial Instruments

Except for derivatives, as disclosed above, GATX has no other assets and liabilities measured at fair value on a recurring basis. The carrying amounts of cash and cash equivalents, rent and other receivables, accounts payable, and commercial paper and borrowings under bank credit facilities with maturities under one year approximate fair value due to the short maturity of those instruments. We estimate the fair values of fixed and floating rate debt using discounted cash flow analyses that are based on interest rates currently offered for loans with similar terms to borrowers of similar credit quality. The inputs we use to estimate each of these values are classified in Level 2 of the fair value hierarchy because they are directly or indirectly observable inputs.

The following table shows the carrying amounts and fair values of our other financial instruments (in millions):

	March 31, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Liabilities
Recourse fixed rate debt	$	4,153.8	$	4,354.7	$	4,389.3	$	4,644.6
Recourse floating rate debt	915.6		911.8		417.5		419.0
Borrowings under bank credit facilities	250.0		248.9		—		—