Derivatives and Hedging

12 Months Ended

Dec. 31, 2019

Derivatives and Hedging

Derivatives and Hedging

14.  DERIVATIVES AND HEDGING

Cash Flow Hedges

The Company is exposed to fluctuations in interest rates under the Syndicated Credit Facility. On April 5, 2018, the Company entered in to several interest rate swap agreements in order to fix the base interest rate to be paid over an aggregate amount of the Company’s variable rate long-term debt, at an average rate of 2.56% (excluding the margin specified in the Syndicated Credit Facility).

The Company is also exposed to foreign exchange risks on certain sales and purchase contracts. The Company enters into foreign exchange forward contracts to hedge the exposure arising from expected foreign currency denominated cash flows on these sales and purchase contracts. As of January 1, 2019, the Company discontinued hedge accounting related

to these sales and purchase contracts. The Company continues to hedge foreign exchange exposure on sales and purchase contracts for economic purposes.

	As of December 31, 2019
	Notional amount	Maximum Contract term
Derivatives designated as hedging instruments
Interest rate swaps	1,000	2.3 years
Derivatives not designated as hedging instruments
Foreign exchange forward contracts
Sales contracts settled in U.S. dollars
Euro	10	0.1 years

	As of December 31, 2018
	Notional amount	Maximum Contract term
Derivatives designated as hedging instruments
Interest rate swaps	1,000	3.3 years
Foreign exchange forward contracts
Purchase contracts settled in U.S. dollars
Euro	9	0.3 years
Japanese Yen	177	0.2 years
Sales contracts settled in U.S. dollars
Euro	20	0.5 years
Japanese Yen	177	0.2 years

The effective portion of losses included in Other comprehensive income (loss), net of tax related to the Company’s interest rate swaps was $18 million, $4 million and $0 million for the years ended December 31, 2019, 2018 and 2017, respectively. The gain/loss from foreign exchange forward contracts was not material for the years ended December 31, 2019, 2018 and 2017, respectively.

In implementing all its derivative financial instruments, the Company deals with counterparties and is therefore exposed to credit related losses in the event of non-performance by these counterparties. However, the Company deals with counterparties that are major financial institutions and does not expect any of the counterparties to fail to meet their obligations.

Net Investment Hedge

At December 31, 2018, the Company had designated $271 million of its Term Loan B as a hedge of its investment in certain U.S. subsidiaries. Foreign exchange gains and losses arising from the translation of the designated portion of the Term Loan B were recognized in Other comprehensive income (loss), net of tax to the extent that the hedges were effective and are recognized in the Consolidated Statements of Operations to the extent that the hedges were ineffective. The fair value of the designated portion of Term Loan B was $256 million as of December 31, 2018. As a result of the Company’s U.S. Domestication on January 1, 2019, and the associated change from a Canadian parent company to a U.S. parent company, the Company’s Syndicated Credit Facility is now in a USD functional currency entity. Due to this change, the net investment hedge was no longer necessary from the domestication date onwards.