Note 9. Derivatives and Hedging Instruments (Notes)

3 Months Ended

Mar. 31, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVES AND HEDGING INSTRUMENTS

DERIVATIVES AND HEDGING INSTRUMENTS

SunEdison's hedging activities consist of:

In millions		Assets (Liabilities or Equity) Fair Value
Type of Instrument	Balance Sheet Classification	As of March 31, 2015			As of December 31, 2014
Derivatives designated as hedging:
Interest rate swaps	Other assets	$	—		$	2
	Accumulated other comprehensive income	—			(2		)
Interest rate swaps	Other liabilities	(62		)	(8		)
	Accumulated other comprehensive loss	7			7
Cross currency swaps	Other assets	76			76
	Other liabilities	(50		)	(55		)
	Accumulated other comprehensive loss (income)	9			(21		)
Commodity derivative	Other liabilities	(8		)	—
	Accumulated other comprehensive income	(14		)	—
Derivatives not designated as hedging:
Currency forward contracts	Other assets	3			2
	Other liabilities	(1		)	(4		)
Interest rate swaps	Other liabilities	(34		)	(61		)
Commodity derivative	Other assets	41			—
		Losses (Gains)
In millions	Statement of Operations Classification	Three Months Ended March 31, 2015			Three Months Ended March 31, 2014
Derivatives not designated as hedging:
Currency forward contracts	Other, net	$	(4	)	$	10
Interest rate swaps	Interest expense	32			9
Commodity derivative	Net sales	4			—
Note hedges	Gain on convertible note derivative	—			(300		)
Conversion options	Loss on convertible note derivative	—			317
Warrants	Loss on convertible note derivative	—			435

To mitigate financial market risks of fluctuations in foreign currency exchange rates, we utilize currency forward contracts. We do not use derivative financial instruments for speculative or trading purposes. We generally hedge transactional currency risks with currency forward contracts. Gains and losses on these foreign currency exposures are generally offset by corresponding losses and gains on the related hedging instruments, reducing our net exposure. A substantial portion of our revenue and capital spending is transacted in U.S. Dollars. However, we do enter into transactions in other currencies, primarily the Euro, the Japanese Yen, the Canadian Dollar, the South African Rand, Korean Won and certain other Asian currencies. To protect against reductions in value and volatility of future cash flows caused by changes in foreign exchange rates, we have established transaction-based hedging programs. Our hedging programs reduce, but do not always eliminate, the impact of foreign currency exchange rate movements. At any point in time, we may have outstanding contracts with several major financial institutions for these hedging transactions. Our maximum credit risk loss with these institutions is limited to any gain on our outstanding contracts. As of March 31, 2015 and December 31, 2014, these currency forward contracts had net notional amounts of $274 million and $294 million, respectively, and are accounted for as economic hedges. There were no outstanding currency forward contracts designated as cash flow hedges as of March 31, 2015 and December 31, 2014.

During the second quarter of 2013, we entered into a cross currency swap with a notional amount of $186 million accounted for as a cash flow hedge. The amounts recorded to the consolidated balance sheet, as provided in the table above, represent the fair value of the net amount that would settle on the balance sheet date if the swap was transferred to other third parties or canceled by us. The effective portion of this cash flow hedge instrument during the quarter ended March 31, 2015 was recorded to accumulated other comprehensive loss (income) in the condensed consolidated balance sheet. No amount of ineffectiveness was recognized during the quarters ended March 31, 2015 and December 31, 2014.

As of March 31, 2015, we are party to certain interest rate swap instruments that are accounted for using hedge accounting. These instruments are used to hedge floating rate debt and are accounted for as cash flow hedges. Under the interest rate swap agreements, we pay the fixed rate and the financial institution counterparties to the agreements pay us a floating interest rate. The amount recorded in the consolidated balance sheet represents the estimated fair value of the net amount that we would settle on March 31, 2015 if the agreements were transferred to other third parties or cancelled by us. The effective portion of these cash flow hedges was a net loss of $7 million and $5 million for the quarters ended March 31, 2015 and December 31, 2014, which was recognized in accumulated other comprehensive loss (income) in the condensed consolidated balance sheet. There was no material ineffectiveness recorded for the quarters ended March 31, 2015 and 2014.

As of March 31, 2015, we are party to certain interest rate swap instruments that are accounted for as economic hedges. These instruments are used to hedge floating rate debt and are not accounted for as cash flow hedges. Under the interest rate swap agreements, we pay the fixed rate and the financial institution counterparties to the agreements pay us a floating interest rate. The amount recorded in the consolidated balance sheet represents the estimated fair value of the net amount that we would settle on March 31, 2015, if the agreements were transferred to other third parties or cancelled by us. Because these hedges are deemed economic hedges and not accounted for under hedge accounting, the changes in fair value are recorded to non-operating expense (income) within the consolidated statement of operations. The fair value of these hedges was a net liability of $34 million and $61 million as of March 31, 2015 and December 31, 2014, respectively.

Through our acquisition of First Wind, we became party to certain commodity contracts used to hedge the cash flows associated with commodity price variability inherent in electricity sales arrangements. If we sell electricity to an independent system operator market and there is no PPA available, we may enter into a commodity contract to stabilize all or a portion of our estimated revenue stream.

As of March 31, 2015, we are party to one such commodity contract that is accounted for using hedge accounting. This commodity contract requires physical delivery of specific quantities of electricity at a fixed price, and, if actual monthly quantities produced are insufficient to make such deliveries, we are obligated to purchase the shortfall amount in the electricity market and deliver it to the counterparty. As this commodity contract has been designated as a cash flow hedge, the changes in its fair value are recognized in other comprehensive income in the condensed consolidated balance sheet. The fair value of this commodity contract was recorded as a liability of $8 million as of March 31, 2015.

As of March 31, 2015, we are party to certain other First Wind-related commodity contracts that are accounted for as economic hedges. These price swap agreements involve periodic settlements for specific quantities of electricity based on a fixed price and are obligated to pay the counterparty market price for the same quantities of electricity. As these hedges are deemed economic hedges and not accounted for under hedge accounting, the changes in fair value are recognized in net sales in the condensed consolidated statement of operations. The fair values of these hedges were recorded as an asset totaling $41 million as of March 31, 2015.

In connection with the senior convertible notes issued in December 2013 and June 2014 as discussed in Note 8, we entered into privately negotiated convertible note hedge transactions and warrant transactions. Assuming full performance by the counterparties, these instruments are meant to effectively reduce our potential payout over the principal amount on the senior convertible notes upon conversion. Refer to Note 8 for additional information.

In connection with the senior convertible notes issued in January 2015 as discussed in Note 8, we entered into privately negotiated capped call option agreements. Assuming full performance by the counterparties, these instruments are meant to reduce the potential dilution to holders of our common stock upon conversion of the 2022 Notes. Refer to Note 8 for additional information.