Derivatives and Hedging Activity

9 Months Ended

Sep. 30, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedging Activity

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 September 30, 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 September 30, 2021 (notional amounts in thousands):

Type of Derivative	Number of Contracts	Aggregate Notional Amount	Notional Currency	Maturity
Fx contracts – Buy Euros ("EUR")	17	52,389	EUR	October 2021 - March 2023
Fx contracts – Buy Pounds Sterling ("GBP")	13	9,935	GBP	November 2021 - October 2024
Fx contracts – Sell EUR	131	255,128	EUR	October 2021 - November 2025
Fx contracts – Sell GBP	131	534,811	GBP	October 2021 - February 2025
Fx contracts – Sell Australian dollar ("AUD")	51	259,803	AUD	October 2021 - October 2024
Interest rate swaps – Paying fixed rates	44	2,469,098	USD	May 2023 - October 2031
Interest rate swaps – Receiving fixed rates	2	473,200	USD	March 2025 - October 2031
Interest rate caps	20	939,893	USD	November 2021 - April 2025
Interest rate caps	1	61,000	GBP	April 2024
Credit index instruments	3	49,000	USD	September 2058 - August 2061
Interest rate swap guarantees	5	309,443	USD	May 2022 - June 2025
Total	418

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 September 30, 2021 and December 31, 2020 (amounts in thousands):

	Fair Value of Derivatives in an Asset Position (1) as of				Fair Value of Derivatives in a Liability Position (2) as of
	September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Interest rate contracts	$	22,684	$	33,841	$	2,054	$	4
Interest rate swap guarantees	—		—		417		849
Foreign exchange contracts	29,882		6,585		12,896		39,951
Credit index instruments	—		129		248		520
Total derivatives	$	52,566	$	40,555	$	15,615	$	41,324

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(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 and nine months ended September 30, 2021 and 2020 (amounts in thousands):

Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income	Amount of Gain (Loss) Recognized in Income for the Three Months Ended September 30,				Amount of Gain (Loss) Recognized in Income for the Nine Months Ended September 30,
		2021		2020		2021		2020
Interest rate contracts	Gain (loss) on derivative financial instruments	$	7,993	$	259	$	20,808	$	(52,129)
Interest rate swap guarantees	Gain (loss) on derivative financial instruments	(65)		260		431		(345)
Foreign exchange contracts	Gain (loss) on derivative financial instruments	33,796		(28,514)		44,857		17,644
Credit index instruments	Gain (loss) on derivative financial instruments	88		(102)		(304)		345
		$	41,812	$	(28,097)	$	65,792	$	(34,485)