Financial Instruments

9 Months Ended

Sep. 30, 2013

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Financial Instruments

10. Financial Instruments

The Company uses derivative financial instruments as part of its overall strategy to manage its exposure to market risks primarily associated with fluctuations in foreign currency and interest rates. The Company does not use derivatives for trading or speculative purposes. During the nine months ended September 30, 2013, there has been no material change in the Company’s interest rate and foreign currency risk management policies or in its fair value methodology, except as mentioned below.

In August 2013, the Company’s interest rate swap derivative contracts expired and it entered into interest rate cap derivative contracts to cap the USLIBOR rate at 1.5%. The purpose of these contracts is to hedge the risk of an increase in interest costs on the Company’s floating rate debt due to an increase in USLIBOR rates. The Company has designated these interest rate cap derivative contracts as accounting cash flow hedges and records the effective portion of changes in fair value of these derivative contracts as a component of other comprehensive income (loss) with the ineffective portion recognized in earnings in the consolidated condensed statements of operations.

Further, with the comprehensive refinancing during the second quarter of 2013 and the repayment of euro denominated debt, the Company has lower foreign exchange risk related to its euro denominated debt compared to prior periods.

As of September 30, 2013, the Company had a net asset position of $15 million related to derivative financial instruments associated with its euro denominated or floating rate debt, its foreign currency denominated receivables and payables, and forecasted earnings of its foreign subsidiaries.

Presented below is a summary of the fair value of the Company’s derivative contracts recorded on the consolidated condensed balance sheets at fair value.

		Fair Value Asset (Liability)					Fair Value Asset (Liability)
(in $ millions)	Balance Sheet Location	September 30, 2013		December 31, 2012		Balance Sheet Location	September 30, 2013		December 31, 2012
Derivatives designated as hedging instruments:
Interest rate caps	Other non-current assets		10		—	Other non-current liabilities		—		—
Derivatives not designated as hedging instruments:
Interest rate swaps	Other current assets		—		—	Accrued expenses and other current liabilities		—		(3)
Foreign currency contracts	Other current assets		6		10	Accrued expenses and other current liabilities		(1)		(1)
Foreign currency contracts	Other non-current assets		—		5	Other non-current liabilities		—		—
Total fair value of derivative assets (liabilities)			16		15			(1)		(4)

As of September 30, 2013, the notional amounts of the above derivative contracts were as follows:

(in $ millions)	Amount
Interest rate caps		2,330
Foreign currency options		215
Foreign currency forwards		195

The interest rate cap derivative contracts cover transactions for periods that do not exceed four years. All other contracts cover transactions for periods that do not exceed one year.

The following table provides a reconciliation of the movement in the net carrying amount of derivative financial instruments.

(in $ millions)	Nine Months Ended September 30, 2013
Net derivative asset as of January 1		11
Loss for the period included in net loss		(7)
Loss for the period included in other comprehensive income (loss)		(2)
Premium paid for interest rate cap derivative contracts		12
Proceeds from settlement of foreign exchange derivative contracts hedging debt instruments, net		(2)
Settlement of foreign exchange derivative contracts and interest rate swaps, net		7
Termination of foreign currency derivative contracts (settlement pending)		(4)
Net derivative asset as of September 30		15

During the nine months ended September 30, 2013, the Company paid $7 million in relation to certain foreign currency derivative contracts which were terminated in 2012 and included within accrued expenses and other current liabilities as at December 31, 2012.

The significant unobservable inputs used to fair value the Company’s derivative financial instruments are probability of default of approximately 3% and a recovery rate of 20%, which are applied to the Company’s credit default swap adjustments. As the credit valuation adjustment applied to arrive at the fair value of derivatives is less than 15% of the unadjusted fair value of derivate instruments for two consecutive quarters, the Company has categorized derivative fair valuations at Level 2 of the fair value hierarchy.

A 10% change in the significant unobservable inputs will not have a material impact on the fair value of the derivative financial instruments as of September 30, 2013.

The table below presents the impact of changes in fair value of derivatives on income (loss) during the period.

	Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss)											Amount of Gain (Loss) Recorded Net Income (Loss)
	Three Months Ended September 30,					Nine Months Ended September 30,					Location of Gain (Loss) Recorded in Income (Loss)	Three Months Ended September 30,					Nine Months Ended September 30,
(in $ millions)	2013			2012		2013			2012			2013		2012			2013			2012
Derivatives designated as hedging instruments:
Interest rate caps		(2	)		—		(2	)		—	Interest expense, net		—		—			—			—
Derivatives not designated as hedging instruments:
Interest rate swaps											Interest expense, net		—		(2	)		(3	)		(3	)
Foreign currency contracts											Selling, general and administrative		7		3			(4	)		(8	)
													7		1			(7	)		(11	)

Fair Value Disclosures for All Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, other current assets, accounts payable, and accrued expenses and other current liabilities approximate fair value due to the short-term maturities of these assets and liabilities. The carrying value of cash held as collateral approximates to its fair value.

The fair values of the Company’s other financial instruments are as follows:

			September 30, 2013						December 31, 2012
(in $ millions)	Fair  Value Hierarchy		Carrying Amount			Fair Value			Carrying Amount			Fair Value
Asset (liability)
Investment in Orbitz Worldwide		Level 1		15			469			—			133
Derivative assets		Level 2		16			16			15			15
Derivative liabilities		Level 2		(1	)		(1	)		(4	)		(4	)
Total debt		Level 2		(3,543	)		(3,614	)		(3,430	)		(2,899	)