Derivatives and Hedging Activity

12 Months Ended

Dec. 31, 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. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, foreign exchange, liquidity and credit risk primarily by managing the amount, sources and duration of our debt funding and the use of derivative financial instruments. Specifically, we enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates, credit spreads, and foreign exchange rates. Our derivative financial instruments are used to manage differences in the amount, timing and duration of the known or expected cash receipts and known or expected cash payments principally related to our investments, anticipated level of loan sales, and borrowings.

Designated Hedges

The Company does not generally elect to apply the hedge accounting designation to its hedging instruments. As of December 31, 2021 and 2020, the Company did not have any designated hedges.

Non-designated Hedges and Derivatives

Derivatives not designated as hedges are derivatives that do not meet the criteria for hedge accounting under GAAP or which we have not elected to designate as hedges. We do not use these derivatives for speculative purposes but instead they are used to manage our exposure to various risks such as foreign exchange rates, interest rate changes and certain credit spreads. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in gain (loss) on derivative financial instruments in our consolidated statements of operations.

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 December 31, 2021 (notional amounts in thousands):

Type of Derivative	Number of Contracts	Aggregate Notional Amount	Notional Currency	Maturity
Fx contracts – Buy Euros ("EUR")	14	51,583	EUR	February 2022 - March 2023
Fx contracts – Buy Pounds Sterling ("GBP")	11	9,731	GBP	February 2022 - October 2024
Fx contracts – Buy Australian dollar ("AUD")	3	17,500	AUD	February 2022 - August 2023
Fx contracts – Sell EUR	144	474,098	EUR	January 2022 - November 2025
Fx contracts – Sell GBP	155	530,879	GBP	January 2022 - February 2025
Fx contracts – Sell AUD	52	265,401	AUD	February 2022 - October 2024
Interest rate swaps – Paying fixed rates	68	2,932,451	USD	April 2024 - January 2032
Interest rate swaps – Receiving fixed rates	2	484,500	USD	March 2025 - December 2031
Interest rate caps	7	702,000	USD	October 2022 - 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	4	277,302	USD	August 2022 - June 2025
Total	464

The table below presents the fair value of our derivative financial instruments as well as their classification on the consolidated balance sheets as of December 31, 2021 and 2020 (amounts in thousands):

	Fair Value of Derivatives in an Asset Position (1) as of December 31,				Fair Value of Derivatives in a Liability Position (2) as of December 31,
	2021		2020		2021		2020
Interest rate contracts	$	17,728	$	33,841	$	16	$	4
Interest rate swap guarantees	—		—		260		849
Foreign exchange contracts	30,478		6,585		12,870		39,951
Credit index instruments	10		129		275		520
Total derivatives	$	48,216	$	40,555	$	13,421	$	41,324

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

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

The table below presents the effect of our derivative financial instruments on the consolidated statements of operations for the years ended December 31, 2021, 2020 and 2019 (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 Year Ended December 31,
		2021		2020		2019
Interest rate contracts	Gain (loss) on derivative financial instruments	$	41,033	$	(48,692)	$	(10,516)
Interest rate swap guarantees	Gain (loss) on derivative financial instruments	589		(235)		(3,350)
Foreign exchange contracts	Gain (loss) on derivative financial instruments	41,228		(32,561)		8,801
Credit index instruments	Gain (loss) on derivative financial instruments	(487)		(690)		(1,245)
		$	82,363	$	(82,178)	$	(6,310)