Financial Instruments

3 Months Ended

Mar. 31, 2014

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 three months ended March 31, 2014, there was no material change in the Company’s interest rate and foreign currency risk management policies or in its fair value methodology.

As of March 31, 2014, the Company had a net asset position of $10 million related to derivative financial instruments associated with its 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					Fair Value (Liability)
(in $ millions)	Balance Sheet Location	March 31, 2014		December 31, 2013		Balance Sheet Location	March 31, 2014		December 31, 2013
Derivatives designated as hedging instruments:
Interest rate caps	Other non-current assets		7		8	Accrued expenses and other current liabilities		—		—
Derivatives not designated as hedging instruments:
Foreign currency contracts	Other current assets		3		3	Accrued expenses and other current liabilities		—		(1)
Total fair value of derivative assets (liabilities)			10		11			—		(1)

As of March 31, 2014, the notional amounts of the above derivative contracts were as follows:

(in $ millions)	Amount
Interest rate caps		2,330
Foreign currency forwards		99

The interest rate cap derivative contracts cover transactions for periods that do not exceed three 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, during the three months ended March 31, 2014.

(in $ millions)	Three Months Ended March 31, 2014
Net derivative asset as of January 1		10
Total gain for the period included in net loss		2
Total loss for period accounted through other comprehensive income		(1)
Payments for settlement of foreign exchange derivative contracts		(1)
Net derivative asset as of March 31		10

During the three months ended March 31, 2014, the Company received $3 million in relation to certain foreign exchange derivative contracts which were terminated in 2013 and included in other current assets as of December 31, 2013. During the three months ended March 31, 2013, the Company paid $7 million in relation to certain foreign exchange derivative contracts which were terminated in 2012 and included within accrued expenses and other current liabilities as of December 31, 2012.

The significant unobservable inputs used to fair value the Company’s derivative financial instruments are probability of default of approximately 2% 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 derivative 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 March 31, 2014.

The table below presents the impact of changes in fair values of derivatives on accumulated other comprehensive loss and on net loss during the three months ended March 31, 2014:

	Amount of Gain (Loss) Recognized in Other Comprehensive Loss					Amount of Gain (Loss) Recorded into Net Income (Loss)
	Three Months Ended March 31,				Location of Gain (Loss) Recorded in Net Loss	Three Months Ended March 31,
(in $ millions)	2014		2013			2014		2013
Derivatives designated as hedging instruments:
Interest rate caps		(1)		—	Interest expense, net		—		—
Derivatives not designated as hedging instruments:
Interest rate swaps					Interest expense, net		—		(1)
Foreign currency contracts					Selling, general and administrative		2		(14)
							2		(15)

The table above includes (i) unrealized losses on interest rate caps held as of March 31, 2014, amounting to $1 million for the three months ended March 31, 2014, and (ii) unrealized gain on foreign currency derivative contracts of $1 million for the three months ended March 31, 2014.

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:

			March 31, 2014				December 31, 2013
(in $ millions)	Fair Value Hierarchy		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Asset (liability)
Investment in Orbitz Worldwide		Level 1		13		381		19		349
Derivative assets		Level 2		10		10		11		11
Derivative liabilities		Level 2		—		—		(1)		(1)
Total debt		Level 2		(3,485)		(3,604)		(3,573)		(3,693)

The fair value of the Company’s investment in Orbitz Worldwide, which is categorized within Level 1 of the fair value hierarchy, has been determined based on quoted prices in active markets.

The fair value of the Company’s total debt has been determined by calculating the fair value of term loans, senior notes and senior subordinated notes based on quoted prices obtained from independent brokers for identical debt instruments when traded as an asset and is categorized within Level 2 of the fair value hierarchy.