Derivatives and Hedging Activity

3 Months Ended

Mar. 31, 2021

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, 2021 and December 31, 2020, the Company did not have any designated hedges.

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; 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, 2021 (notional amounts in thousands):

Type of Derivative	Number of Contracts	Aggregate Notional Amount	Notional Currency	Maturity
Fx contracts – Buy Euros ("EUR")	2	3,973	EUR	November 2022
Fx contracts – Buy Pounds Sterling ("GBP")	8	16,675	GBP	April 2021 – July 2022
Fx contracts – Sell EUR	208	252,796	EUR	April 2021 – November 2025
Fx contracts – Sell GBP	156	556,798	GBP	April 2021 – May 2024
Fx contracts – Sell Australian dollar ("AUD")	19	188,554	AUD	August 2021 – June 2022
Interest rate swaps – Paying fixed rates	46	1,791,332	USD	May 2023 – April 2031
Interest rate swaps – Receiving fixed rates	1	470,000	USD	March 2025
Interest rate caps	22	985,635	USD	April 2021 – April 2025
Credit index instruments	3	49,000	USD	September 2058 – August 2061
Interest rate swap guarantees	6	371,890	USD	March 2022 – June 2025
Total	471

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, 2021 and December 31, 2020 (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,
	2021		2020		2021		2020
Interest rate contracts	$	25,331	$	33,841	$	4	$	4
Interest rate swap guarantees		—		—		498		849
Foreign exchange contracts		12,617		6,585		34,002		39,951
Credit index instruments		81		129		301		520
Total derivatives	$	38,029	$	40,555	$	34,805	$	41,324

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

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

The table below presents the effect of our derivative financial instruments on the condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020 (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	2021		2020
Interest rate contracts	Gain on derivative financial instruments	$	20,158	$	(45,125)
Interest rate swap guarantees	Gain on derivative financial instruments		351		(675)
Foreign exchange contracts	Gain on derivative financial instruments		13,602		53,265
Credit index instruments	Gain on derivative financial instruments		(122)		2,245
		$	33,989	$	9,710