Fair Values of Financial Instruments

Fair values are based on estimates using present value or other valuation techniques in cases where quoted market prices are not available. Those techniques are significantly affected by the assumptions used, including the discount rate and the estimated timing and amount of future cash flows. Therefore, the estimates of fair value may differ substantially from amounts that ultimately may be realized or paid at settlement or maturity of the financial instruments and those differences may be material. Disclosures about fair value of financial instruments exclude certain financial instruments and all non-financial instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of our company.

Estimated fair values, carrying values and various methods and assumptions used in valuing our financial instruments are set forth below (in millions):



			December 31, 2014				December 31, 2013
		Level	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial assets:
Cash and cash equivalents	^(a)	1	$	2,974	$	2,974	$	1,074	$	1,074
Finance receivables, net	^(b)	3	$	33,000	$	33,573	$	29,282	$	29,301
Restricted cash	^(a)	1	$	2,071	$	2,071	$	1,958	$	1,958
Interest rate swap agreements	^(c)	3	$	6	$	6	$	11	$	11
Interest rate cap agreements purchased	^(d)	2	$	6	$	6	$	7	$	7
Foreign currency swap agreements	^(d)	2	$	4	$	4	$	3	$	3
Financial liabilities:
Secured debt
North America	^(e)	2	$	15,454	$	15,497	$	12,479	$	12,565
International	^(f)	2	$	5,690	$	5,694	$	5,113	$	5,113
International	^(g)	3	$	4,070	$	4,037	$	4,481	$	4,492
Unsecured debt
North America	^(h)	2	$	7,846	$	8,092	$	4,000	$	4,106
International	⁽ⁱ⁾	2	$	3,496	$	3,507	$	1,282	$	1,282
International	^(g)	3	$	875	$	880	$	1,691	$	1,690
Interest rate swap agreements	^(c)	3	$	39	$	39	$	17	$	17
Interest rate cap agreements sold	^(d)	2	$	6	$	6	$	7	$	7
Foreign currency swap agreements	^(d)	2	$	1	$	1	$	29	$	29

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(a)	Cash and cash equivalents and restricted cash bear interest at market rates; therefore, carrying value is considered to be a reasonable estimate of fair value.

(b)

The fair value of the consumer finance receivables in the North America Segment is estimated based upon forecasted cash flows on the receivables discounted using a pre-tax weighted-average cost of capital. The fair value of the consumer finance receivables in the International Segment is estimated based on forecasted cash flows on the receivables discounted using current origination rates for similar type loans. Commercial finance receivables generally have variable interest rates and maturities of one year or less. Therefore, the carrying value is considered to be a reasonable estimate of fair value.


(c)	The fair values of the interest rate swap agreements are estimated by discounting future net cash flows expected to be settled using current risk-adjusted rates.


(d)	The fair values of the interest rate cap agreements and foreign currency swap agreements are based on quoted market prices.

(e)

Secured debt in the North America Segment is comprised of revolving credit facilities, publicly-issued secured debt, and privately-issued secured debt. For revolving credit facilities with variable rates of interest and terms of one year or less, carrying value is considered to be a reasonable estimate of fair value. The fair value of the publicly and privately issued secured debt is based on quoted market prices, when available. If quoted market prices are not available, the market value is estimated using quoted market prices of similar securities.


(f)	The level 2 secured debt in the International Segment has terms of one year or less, or has been priced within the last six months; therefore, par value is considered to be a reasonable estimate of fair value.


(g)	The fair value of level 3 secured debt and unsecured debt in the International Segment is estimated by discounting future net cash flows expected to be settled using current risk-adjusted rates.


(h)	The fair value of unsecured debt in the North America Segment is based on quoted market prices in thinly-traded markets.


(i)	The level 2 unsecured debt in the International Segment has terms of one year or less; therefore, par value is considered to be a reasonable estimate of fair value.The fair value of senior notes is based on quoted market prices in thinly-traded markets.

The fair value of our consumer finance receivables is based on observable and unobservable inputs within a discounted cash flow model. Those unobservable inputs reflect assumptions regarding expected prepayments, deferrals, delinquencies, recoveries and charge-offs of the loans within the portfolio. The cash flow model produces an estimated amortization schedule of the finance receivables which is the basis for the calculation of the series of cash flows that derive the fair value of the portfolio. For the North America Segment, the series of cash flows is calculated and discounted using a weighted-average cost of capital using unobservable debt and equity percentages, an unobservable cost of equity and an observable cost of debt based on companies with a similar credit rating and maturity profile. For the International Segment, the series of cash flows is calculated and discounted using current interest rates. Macroeconomic factors could affect the credit performance of our portfolio and therefore could potentially impact the assumptions used in our cash flow model.