Derivatives and hedging activities

Belmond hedges its interest rate risk, ensuring that an element of its floating rate interest is fixed by using interest rate derivatives. Belmond designates these derivatives as cashflow hedges. Additionally, Belmond designates its foreign currency borrowings and currency derivatives as net investment hedges of overseas operations.

In connection with the Term Loan Facility, the interest rate derivatives associated with the previous term loan facility were terminated. See Note 11. The termination costs incurred were $2,145,000 during the year ended December 31, 2017. All amounts in other comprehensive income/(loss) relating to these derivatives will be amortized to interest expense over the remaining original life of the interest rate derivative under ASC 815 Derivatives and Hedging. New interest rate derivatives were entered into to fix an element of the floating interest rate on the Term Loan Facility.

Cash flow hedges of interest rate risk

As of December 31, 2017 and 2016, Belmond had the following outstanding interest rate derivatives stated at their notional amounts in local currency that were designated as cash flow hedges of interest rate risk:



	2017		2016
December 31,	’000		’000

Interest rate swaps	€	89,500	€	72,938
Interest rate swaps	$	243,000	$	210,756
Interest rate caps	$	17,200	$	17,200

Fair value

The table below presents the fair value of Belmond’s derivative financial instruments and their classification as of December 31, 2017 and 2016:



		Fair value as of		Fair value as of
		December 31, 2017		December 31, 2016
	Balance sheet location	$’000		$’000
Derivatives designated in a cash flow hedging relationship:
Interest rate derivatives	Other assets	1,776		—
Interest rate derivatives	Accrued liabilities	(858	)	(2,310	)
Interest rate derivatives	Other liabilities	—		(1,054	)

Total		918		(3,364	)

Offsetting

There was no offsetting within derivative assets or derivative liabilities at December 31, 2017 and 2016. However, derivatives are subject to master netting arrangements.

Other comprehensive income/(loss)

Information concerning the movements in other comprehensive income/(loss) for cash flow hedges of interest rate risk is shown in Note 23. At December 31, 2017, the amount accounted for in other comprehensive income/(loss) which is expected to be reclassified to interest expense in the next 12 months is $2,102,000. Movement in other comprehensive income/(loss) for net investment hedges recorded through foreign currency translation adjustments for the year ended December 31, 2017 was a $2,745,000 loss (2016 - $4,975,000 gain; 2015 - $18,221,000 gain).

Credit-risk-related contingent features

Belmond has agreements with some of its derivative counterparties that contain provisions under which, if Belmond defaults on the debt associated with the hedging instrument, Belmond could also be declared in default in respect of its derivative obligations.

As of December 31, 2017, the fair value of derivatives in a net asset position, which includes accrued interest and an adjustment for non-performance risk, related to these agreements was $918,000 (2016 - $3,364,000 net liability). If Belmond breached any of the provisions, the obligations under the agreements would be settled at termination value of $942,000 inflow (2016 - $3,370,000 outflow).

Non-derivative financial instruments — net investment hedges

Belmond uses certain of its debt denominated in foreign currency to hedge portions of its net investments in foreign operations against adverse movements in exchange rates. Belmond’s designates its euro-denominated indebtedness as a net investment hedge of long-term investments in its euro-functional subsidiaries. These contracts are included in non-derivative hedging instruments. The notional value of non-derivative hedging instruments was $213,350,000 at December 31, 2017 (2016 - $153,472,000), being a liability of Belmond.