Derivatives, Hedging Activities and Interest Expense

9 Months Ended

Dec. 31, 2015

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivatives, Hedging Activities and Interest Expense

Note 7 – Derivatives, Hedging Activities and Interest Expense

Derivative Instruments

Our liabilities consist mainly of fixed and floating rate debt, denominated in various currencies, which we issue in the global capital markets, while our assets consist primarily of U.S. dollar denominated, fixed rate receivables.  We enter into interest rate swaps and foreign currency swaps to hedge the interest rate and foreign currency risks that result from the different characteristics of our assets and liabilities.  Our use of derivative transactions is intended to reduce long-term fluctuations in cash flows and fair value adjustments of assets and liabilities caused by market movements.  All of our derivative activities are authorized and monitored by our management and our Asset Liability Committee which provides a framework for financial controls and governance to manage market risk.

Credit Risk Related Contingent Features

Our derivative contracts are governed by International Swaps and Derivatives Association (“ISDA”) Master Agreements.  Substantially all of these ISDA Master Agreements contain reciprocal ratings triggers providing either party with an option to terminate the agreement at market value in the event of a ratings downgrade of the other party below a specified threshold.  As of December 31, 2015, we have daily valuation and collateral exchange arrangements with all of our counterparties.  Our collateral agreements with substantially all our counterparties include a zero threshold, full collateralization arrangement.  However, due to the time required to move collateral, there may be a delay of up to one day between the exchange of collateral and the valuation of our derivatives.

The aggregate fair value of derivative instruments that contain credit risk related contingent features that were in a net liability position at December 31, 2015 was $75 million, excluding adjustments made for our own non-performance risk.  However, we would not be required to post additional collateral to the counterparties with whom we were in a net liability position at December 31, 2015 if our credit ratings were to decline, since we fully collateralize without regard to credit ratings with these counterparties.

Note 7 – Derivatives, Hedging Activities and Interest Expense (Continued)

Derivative Activity Impact on Financial Statements

The following tables show the financial statement line item and amount of our derivative assets and liabilities that are reported in the Consolidated Balance Sheet:

	As of December 31, 2015
	Hedge accounting				Non-hedge
	derivatives				accountingderivatives				Total
			Fair				Fair				Fair
	Notional		value		Notional		value		Notional		value
Other assets
Interest rate swaps	$	-	$	-	$	44,447	$	423	$	44,447	$	423
Foreign currency swaps		271		20		630		143		901		163
Total	$	271	$	20	$	45,077	$	566	$	45,348	$	586
Counterparty netting and collateral held												(533	)
Carrying value of derivative    contracts – Other assets											$	53
Other liabilities
Interest rate swaps	$	-	$	-	$	50,970	$	235	$	50,970	$	235
Interest rate caps		-		-		30		-		30		-
Foreign currency swaps		251		59		14,676		1,812		14,927		1,871
Total	$	251	$	59	$	65,676	$	2,047	$	65,927	$	2,106
Counterparty netting and collateral posted												(2,031	)
Carrying value of derivative    contracts – Other liabilities											$	75

As of December 31, 2015, we held collateral of $120 million, which offset derivative assets, and posted collateral of $1,618 million, which offset derivative liabilities.  We also held excess collateral of $3 million, which we did not use to offset derivative assets.   

Note 7 – Derivatives, Hedging Activities and Interest Expense (Continued)

	As of March 31, 2015
	Hedge accounting				Non-hedge
	derivatives				accountingderivatives				Total
			Fair				Fair				Fair
	Notional		value		Notional		value		Notional		value
Other assets
Interest rate swaps	$	190	$	4	$	26,549	$	467	$	26,739	$	471
Foreign currency swaps		271		24		913		193		1,184		217
Total	$	461	$	28	$	27,462	$	660	$	27,923	$	688
Counterparty netting and collateral held												(635	)
Carrying value of derivative    contracts – Other assets											$	53
Other liabilities
Interest rate swaps	$	-	$	-	$	64,852	$	386	$	64,852	$	386
Interest rate caps		-		-		50		-		50		-
Foreign currency swaps		251		43		12,971		1,845		13,222		1,888
Total	$	251	$	43	$	77,873	$	2,231	$	78,124	$	2,274
Counterparty netting and collateral posted												(2,184	)
Carrying value of derivative    contracts – Other liabilities											$	90

As of March 31, 2015, we held collateral of $145 million which offset derivative assets, and posted collateral of $1,694 million which offset derivative liabilities.  We also held excess collateral of $10 million which we did not use to offset derivative assets, and we posted excess collateral of $2 million which we did not use to offset derivative liabilities.

Note 7 – Derivatives, Hedging Activities and Interest Expense (Continued)

The following table summarizes the components of interest expense, including the location and amount of gains and losses on derivative instruments and related hedged items, as reported in our Consolidated Statement of Income:

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2015			2014			2015			2014
Interest expense on debt	$	334		$	304		$	964		$	923
Interest income on hedge accounting derivatives		(4	)		(10	)		(12	)		(35	)
Interest income on non-hedge accounting foreign currency    swaps		(23	)		(37	)		(78	)		(129	)
Interest expense on non-hedge accounting interest rate swaps		28			30			86			94
Interest expense on debt and derivatives,  net		335			287			960			853
Loss on hedge accounting derivatives:
Interest rate swaps		-			5			-			15
Foreign currency swaps		6			50			23			113
Loss on hedge accounting derivatives		6			55			23			128
Less hedged item:  change in fair value of fixed rate debt		(7	)		(56	)		(25	)		(129	)
Ineffectiveness related to hedge accounting derivatives		(1	)		(1	)		(2	)		(1	)
(Gain) loss from foreign currency transactions    and non-hedge accounting derivatives:
(Gain) loss on non-hedge accounting foreign currency    transactions		(222	)		(567	)		(68	)		(1,354	)
Loss (gain) on non-hedge accounting foreign currency swaps		263			542			170			1,253
(Gain) loss on non-hedge accounting interest rate    swaps		(98	)		(100	)		(72	)		(245	)
Total interest expense	$	277		$	161		$	988		$	506

Interest expense on debt and derivatives represents net interest settlements and changes in accruals.  Gains and losses from hedge accounting derivatives and foreign currency transactions exclude net interest settlements and changes in accruals.

The relative fair value allocation of derivative credit value adjustments for counterparty and non-performance credit risk within interest expense is not significant for the three and nine months ended December 31, 2015 and 2014 as we fully collateralize our derivatives without regard to credit ratings.