Derivatives and Hedging Activity

12 Months Ended

Dec. 31, 2023

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, 2023 and 2022, 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;

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

•Credit 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, 2023 (notional amounts in thousands):

Type of Derivative	Number of Contracts	Aggregate Notional Amount	Notional Currency	Maturity
Fx contracts – Buy Euros (“EUR”)	14	28,805	EUR	January 2024 - April 2026
Fx contracts – Buy Pounds Sterling (“GBP”)	17	129,948	GBP	January 2024 - January 2027
Fx contracts – Buy Australian dollar (“AUD”)	12	822,069	AUD	January 2024 - October 2026
Fx contracts – Sell EUR	186	843,888	EUR	January 2024 - February 2027
Fx contracts – Sell GBP	221	668,887	GBP	January 2024 - April 2027
Fx contracts – Sell AUD	133	1,704,744	AUD	January 2024 - July 2027
Fx contracts – Sell Swiss Franc (“CHF”)	65	20,423	CHF	February 2024 - November 2025
Interest rate swaps – Paying fixed rates	51	4,456,559	USD	April 2024 - October 2033
Interest rate swaps – Receiving fixed rates	2	970,000	USD	March 2025 - January 2027
Interest rate caps	4	624,499	USD	November 2024 - April 2025
Interest rate caps	1	61,000	GBP	April 2024
Credit instruments	3	49,000	USD	September 2058 - August 2061
Interest rate swap guarantees	1	100,456	USD	June 2025
Total	710

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, 2023 and 2022 (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,
	2023		2022		2023		2022
Interest rate contracts	$	8,899	$	10,756	$	48,401	$	69,776
Interest rate swap guarantees	—		—		—		—
Foreign exchange contracts	53,979		97,289		54,066		21,628
Credit instruments	559		576		—		—
Total derivatives	$	63,437	$	108,621	$	102,467	$	91,404

___________________________________________________

(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, 2023, 2022 and 2021 (amounts in thousands):

Derivatives Not Designated as Hedging Instruments	Location of (Loss) Gain Recognized in Income	Amount of (Loss) Gain Recognized in Income for the Year Ended December 31,
		2023		2022		2021
Interest rate contracts	(Loss) gain on derivative financial instruments, net	$	27,293	$	216,778	$	41,033
Interest rate swap guarantees	(Loss) gain on derivative financial instruments, net	—		260		589
Foreign exchange contracts	(Loss) gain on derivative financial instruments, net	(65,085)		116,443		41,228
Credit instruments	(Loss) gain on derivative financial instruments, net	(813)		534		(487)
		$	(38,605)	$	334,015	$	82,363