Financial Instruments

6 Months Ended

Jun. 30, 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 six months ended June 30, 2014, there was no material change in the Company’s interest rate and foreign currency risk management policies or in its fair value methodology except as set out below.

In June 2014, the Company ceased hedge accounting for its interest rate cap derivative instruments. With the exchange of common shares of Travelport Worldwide for the Company’s term loans in July 2014, which the Company subsequently canceled and reduced the principal amount of debt being hedged to under 100% of its notional amount and the Company’s announcement of the proposed refinancing of its capital structure in August 2014 (see Note 14—Subsequent Events), the Company determined that the hedge effectiveness could no longer be achieved. Further, the underlying future interest cash outflows hedged were considered as not probable of occurring, resulting in the Company realizing losses of $8 million accumulated within other comprehensive income (loss) and recognizing it within its consolidated condensed statements of operations.

As of June 30, 2014, the Company had a net asset position of $5 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.

	Balance Sheet Location	Fair Value Asset				Balance Sheet Location	Fair Value (Liability)
(in $ millions)		June 30, 2014		December 31, 2013			June 30, 2014		December 31, 2013
Derivatives designated as hedging instruments:
Interest rate caps	Other non-current assets	$	—	$	8	Other non-current liabilities	$	—	$	—
Derivatives not designated as hedging instruments:
Foreign currency contracts	Other current assets		1		3	Accrued expenses and other current liabilities		—		(1	)
Interest rate caps	Other non-current assets		4		—	Accrued expenses and other current liabilities		—		—
Total fair value of derivative assets (liabilities)		$	5	$	11		$	—	$	(1	)

As of June 30, 2014, the notional amounts of the above derivative contracts were as follows:

(in $ millions)	Amount
Interest rate caps	$	2,330
Foreign currency forwards	$	103

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 six months ended June 30, 2014.

(in $ millions)	Six Months Ended June 30, 2014			Six Months Ended June 30, 2013
Net derivative asset as of January 1	$	10		$	11
Total gain (loss) for the period included in net loss		2			(14	)
Total loss for period accounted through other comprehensive income (loss)		(4	)		—
Proceeds from settlement of foreign exchange derivative contracts		(3	)		(2	)
Settlement of interest rate derivative contracts		—			3
Termination of foreign exchange derivative contracts (settlement pending)		—			(2	)
Net derivative asset (liability) as of June 30	$	5		$	(4	)

During the six months ended June 30, 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 six months ended June 30, 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 June 30, 2014.

The table below presents the impact of changes in fair values of derivatives on accumulated other comprehensive income (loss) and on net income (loss) during the three and six months ended June 30, 2014:

	Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss)								Location of Gain (Loss) Recorded in Income (Loss)	Amount of Gain (Loss) Recorded Net Income (Loss)
	Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,						Six Months Ended June 30,
(in $ millions)	2014		2013		2014		2013			2014			2013			2014			2013
Derivatives designated as hedging instruments:
Interest rate caps	$	5	$	—	$	4	$	—	Interest expense, net	$	—		$	—		$	—		$	—
Derivatives not designated as hedging instruments:
Interest rate swaps		N/A		N/A		N/A		N/A	Interest expense, net		(8	)		(2	)		(8	)		(3	)
Foreign currency contracts		N/A		N/A		N/A		N/A	Selling, general and administrative		—			3			2			(11	)
										$	(8	)	$	1		$	(6	)	$	(14	)

The table above includes unrealized gain on foreign currency derivative contracts of $1 million and $2 million for the three and six months ended June 30, 2014, respectively.

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:

	Fair Value Hierarchy	June 30, 2014						December 31, 2013
(in $ millions)		Carrying Amount			Fair Value			Carrying Amount			Fair Value
Asset (liability)
Investment in Orbitz Worldwide	Level 1	$	10		$	354		$	19		$	349
Derivative assets	Level 2		5			5			11			11
Derivative liabilities	Level 2		—			—			(1	)		(1	)
Total debt	Level 2		(3,256	)		(3,363	)		(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.