Derivatives and Hedging Activity

3 Months Ended

Mar. 31, 2020

Derivatives and Hedging Activity

Derivatives and Hedging Activity

12. Derivatives and Hedging Activity

Risk Management Objective of Using Derivatives

We are exposed to certain risks arising from both our business operations and economic conditions. Refer to Note 13 to the consolidated financial statements included in our Form 10-K for further discussion of our risk management objectives and policies.

Designated Hedges

The Company does not generally elect to apply the hedge accounting designation to its hedging instruments. As of March 31, 2020 and December 31, 2019, the Company did not have any designated hedges.

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Non-designated Hedges and Derivatives

We have entered into the following types of non-designated hedges and derivatives:

● Foreign exchange (“Fx”) forwards whereby we agree to buy or sell a specified amount of foreign currency for a specified amount of USD at a future date, economically fixing the USD amounts of foreign denominated cash flows we expect to receive or pay related to certain foreign denominated loan investments and properties;

● Interest rate contracts which hedge a portion of our exposure to changes in interest rates;

● Credit index instruments which hedge a portion of our exposure to the credit risk of our commercial loans held-for-sale;

● Forward loan purchase commitments whereby we agree to buy a specified amount of residential mortgage loans at a future date for a specified price and the counterparty is contractually obligated to deliver such mortgage loans (see Note 21); and

● Interest rate swap guarantees whereby we guarantee the interest rate swap obligations of certain Infrastructure Lending borrowers. Our interest rate swap guarantees were assumed in connection with the acquisition of the Infrastructure Lending Segment.

The following table summarizes our non-designated derivatives as of March 31, 2020 (notional amounts in thousands):

Type of Derivative	Number of Contracts	Aggregate Notional Amount	Notional Currency	Maturity
Fx contracts – Sell Euros ("EUR")	230	215,677	EUR	May 2020 – November 2025
Fx contracts – Buy Pounds Sterling ("GBP")	2	2,414	GBP	June 2020
Fx contracts – Sell Pounds Sterling ("GBP")	94	383,837	GBP	April 2020 – December 2023
Fx contracts – Sell Australian dollar ("AUD")	7	49,793	AUD	August 2021 – November 2021
Interest rate swaps – Paying fixed rates	40	1,493,447	USD	August 2022 – March 2030
Interest rate swaps – Receiving fixed rates	2	970,000	USD	January 2021 – March 2025
Interest rate caps	10	717,777	USD	September 2020 – August 2023
Credit index instruments	4	69,000	USD	September 2058 – August 2061
Forward loan purchase commitments	1	17,988	USD	April 2020
Interest rate swap guarantees	6	392,607	USD	March 2022 – June 2025
Total	396

The table below presents the fair value of our derivative financial instruments as well as their classification on the condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019 (amounts in thousands):

	Fair Value of Derivatives				Fair Value of Derivatives
	in an Asset Position (1) as of				in a Liability Position (2) as of
	March 31,		December 31,		March 31,		December 31,
	2020		2019		2020		2019
Interest rate contracts	$	41,970	$	14,385	$	140	$	—
Interest rate swap guarantees		—		—		1,289		614
Foreign exchange contracts		57,243		14,558		3,689		7,834
Credit index instruments		2,235		—		—		292
Total derivatives	$	101,448	$	28,943	$	5,118	$	8,740

(1) Classified as derivative assets in our condensed consolidated balance sheets.

(2) Classified as derivative liabilities in our condensed consolidated balance sheets.

The tables below present the effect of our derivative financial instruments on the condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019 (amounts in thousands):

		Amount of Gain (Loss)
		Recognized in Income for the
Derivatives Not Designated	Location of Gain (Loss)	Three Months Ended March 31,
as Hedging Instruments	Recognized in Income	2020		2019
Interest rate contracts	Gain (loss) on derivative financial instruments	$	(45,125)	$	(3,757)
Interest rate swap guarantees	Gain (loss) on derivative financial instruments		(675)		(182)
Foreign exchange contracts	Gain (loss) on derivative financial instruments		53,265		2,444
Credit index instruments	Gain (loss) on derivative financial instruments		2,245		(712)
		$	9,710	$	(2,207)