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Derivative Instruments
 6 Months Ended
Jun. 30, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments Derivative Instruments

In general, we seek to enter into derivative instruments to protect against (i) foreign currency movements, particularly with respect to borrowings that are denominated in a currency other than the functional currency of the borrowing entity, (ii) increases in the interest rates on our variable-rate debt and (iii) decreases in the market prices of certain publicly traded securities that we own. In this regard, through our subsidiaries, we have entered into various derivative instruments to manage interest rate exposure and foreign currency exposure with respect to the U.S. dollar ($), the euro (€), the British pound sterling (£), the Swiss franc (CHF), the Chilean peso (CLP), the Czech koruna (CZK), the Hungarian forint (HUF), the Indian rupee (INR), the Jamaican dollar (JMD), the Philippine peso (PHP), the Polish zloty (PLN) and the Romanian lei (RON). With the exception of a limited number of our foreign currency forward contracts, we do not apply hedge accounting to our derivative instruments. Accordingly, changes in the fair values of most of our derivative instruments are recorded in realized and unrealized gains or losses on derivative instruments, net, in our condensed consolidated statements of operations.

The following table provides details of the fair values of our derivative instrument assets and liabilities:
 
June 30, 2017
 
December 31, 2016
 
Current (a)
 
Long-term (a)
 
Total
 
Current (a)
 
Long-term (a)
 
Total
 
in millions
Assets:
 
 
 
 
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts:
 
 
 
 
 
 
 
 
 
 
 
Liberty Global Group
$
320.0

 
$
1,566.2

 
$
1,886.2

 
$
337.5

 
$
2,123.1

 
$
2,460.6

LiLAC Group
6.3

 
107.0

 
113.3

 
6.9

 
139.0

 
145.9

Total cross-currency and interest rate derivative contracts (b)
326.3

 
1,673.2

 
1,999.5

 
344.4

 
2,262.1

 
2,606.5

Equity-related derivative instruments – Liberty Global Group (c)
—

 
556.6

 
556.6

 
37.1

 
486.9

 
524.0

Foreign currency forward and option contracts:
 
 
 
 


 
 
 
 
 
 
Liberty Global Group
15.6

 
4.9

 
20.5

 
30.7

 
14.1

 
44.8

LiLAC Group
2.8

 
0.8

 
3.6

 
0.3

 
—

 
0.3

Total foreign currency forward and option contracts
18.4

 
5.7

 
24.1

 
31.0

 
14.1

 
45.1

Other – Liberty Global Group
0.4

 
0.5

 
0.9

 
0.2

 
0.3

 
0.5

Total assets:
 
 
 
 
 
 
 
 
 
 
 
Liberty Global Group
336.0

 
2,128.2

 
2,464.2

 
405.5

 
2,624.4

 
3,029.9

LiLAC Group
9.1

 
107.8

 
116.9

 
7.2

 
139.0

 
146.2

Total
$
345.1


$
2,236.0


$
2,581.1


$
412.7


$
2,763.4


$
3,176.1

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts:
 
 
 
 
 
 
 
 
 
 
 
Liberty Global Group
$
264.0

 
$
1,107.8

 
$
1,371.8

 
$
239.1

 
$
999.6

 
$
1,238.7

LiLAC Group
27.8

 
14.6

 
42.4

 
24.6

 
28.9

 
53.5

Total cross-currency and interest rate derivative contracts (b)
291.8

 
1,122.4

 
1,414.2

 
263.7

 
1,028.5

 
1,292.2

Equity-related derivative instruments – Liberty Global Group (c)
8.8

 
—

 
8.8

 
8.6

 
—

 
8.6

Foreign currency forward and option contracts:
 
 
 
 
 
 
 
 
 
 
 
Liberty Global Group
16.3

 
0.5

 
16.8

 
4.7

 
0.1

 
4.8

LiLAC Group
2.4

 
—

 
2.4

 
4.2

 
—

 
4.2

Total foreign currency forward and option contracts
18.7

 
0.5

 
19.2

 
8.9

 
0.1

 
9.0

Other – Liberty Global Group
—

 
—

 
—

 
—

 
0.1

 
0.1

Total liabilities:
 
 
 
 
 
 
 
 
 
 
 
Liberty Global Group
289.1

 
1,108.3

 
1,397.4

 
252.4

 
999.8

 
1,252.2

LiLAC Group
30.2

 
14.6

 
44.8

 
28.8

 
28.9

 
57.7

Total
$
319.3


$
1,122.9


$
1,442.2


$
281.2


$
1,028.7


$
1,309.9

_______________ 

(a)
Our current derivative liabilities, long-term derivative assets and long-term derivative liabilities are included in other accrued and current liabilities, other assets, net, and other long-term liabilities, respectively, in our condensed consolidated balance sheets.

(b)
We consider credit risk relating to our and our counterparties’ nonperformance in the fair value assessment of our derivative instruments. In all cases, the adjustments take into account offsetting liability or asset positions within each of our primary borrowing groups (as defined and described in note 8). The changes in the credit risk valuation adjustments associated with our cross-currency and interest rate derivative contracts resulted in a net gain (loss) of $72.2 million and ($14.3 million) during the three months ended June 30, 2017 and 2016, respectively, and a net gain of $145.3 million and $7.1 million during the six months ended June 30, 2017 and 2016, respectively. These amounts are included in realized and unrealized gains (losses) on derivative instruments, net, in our condensed consolidated statements of operations. For further information regarding our fair value measurements, see note 6.

(c)
Our equity-related derivative instruments primarily include the fair value of (i) the share collar (the ITV Collar) with respect to ITV shares held by our company, (ii) the share collar (the Sumitomo Collar) with respect to a portion of the shares of Sumitomo held by our company and (iii) the prepaid forward transaction (the Lionsgate Forward) with respect to 2.5 million of the shares of Lionsgate held by our company. The fair values of the ITV Collar, the Sumitomo Collar and the Lionsgate Forward do not include credit risk valuation adjustments as we assume that any losses incurred by our company in the event of nonperformance by the respective counterparty would be, subject to relevant insolvency laws, fully offset against amounts we owe to such counterparty pursuant to the related secured borrowing arrangements.

The details of our realized and unrealized gains (losses) on derivative instruments, net, are as follows:
 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
 
in millions
Cross-currency and interest rate derivative contracts:
 
 
 
 
 

 
Liberty Global Group
$
(656.9
)
 
$
699.8

 
$
(810.7
)
 
$
64.4

LiLAC Group
(11.8
)
 
(43.6
)
 
(37.3
)
 
(181.2
)
Total cross-currency and interest rate derivative contracts
(668.7
)
 
656.2

 
(848.0
)
 
(116.8
)
Equity-related derivative instruments – Liberty Global Group:
 
 
 
 
 

 
ITV Collar
163.4

 
308.3

 
110.2

 
513.7

Sumitomo Collar
2.2

 
66.3

 
(21.3
)
 
135.0

Lionsgate Forward
(2.5
)
 
3.3

 
(2.0
)
 
22.0

Other
0.4

 
0.5

 
(5.4
)
 
0.9

Total equity-related derivative instruments
163.5

 
378.4

 
81.5


671.6

Foreign currency forward contracts:
 
 
 
 
 

 
Liberty Global Group
(12.1
)
 
19.8

 
(18.6
)
 
(1.9
)
LiLAC Group
2.6

 
(1.8
)
 
0.8

 
(8.9
)
Total foreign currency forward contracts
(9.5
)
 
18.0

 
(17.8
)
 
(10.8
)
Other – Liberty Global Group
0.2

 
(0.6
)
 
0.7

 
(0.7
)
 
 
 
 
 
 
 
 
Total Liberty Global Group
(505.3
)
 
1,097.4

 
(747.1
)
 
733.4

Total LiLAC Group
(9.2
)
 
(45.4
)
 
(36.5
)
 
(190.1
)
Total
$
(514.5
)

$
1,052.0


$
(783.6
)

$
543.3


The net cash received or paid related to our derivative instruments is classified as an operating, investing or financing activity in our condensed consolidated statements of cash flows based on the objective of the derivative instrument and the classification of the applicable underlying cash flows. For foreign currency forward contracts that are used to hedge capital expenditures, the net cash received or paid is classified as an adjustment to capital expenditures in our condensed consolidated statements of cash flows. For derivative contracts that are terminated prior to maturity, the cash paid or received upon termination that relates to future periods is classified as a financing activity. The classification of these net cash outflows is as follows:
 
Six months ended
 
June 30,
 
2017
 
2016
 
in millions
Operating activities:
 
 
 
Liberty Global Group
$
112.4

 
$
(1.5
)
LiLAC Group
(18.2
)
 
2.8

Total operating activities
94.2

 
1.3

Investing activities:
 
 
 
Liberty Global Group
(0.5
)
 
—

LiLAC Group
(1.6
)
 
(0.4
)
Total investing activities
(2.1
)
 
(0.4
)
Financing activities – Liberty Global Group
(139.5
)
 
(43.3
)
Total cash inflows (outflows):
 
 
 
Liberty Global Group
(27.6
)
 
(44.8
)
LiLAC Group
(19.8
)
 
2.4

Total
$
(47.4
)
 
$
(42.4
)


Counterparty Credit Risk

We are exposed to the risk that the counterparties to the derivative instruments of our subsidiary borrowing groups will default on their obligations to us. We manage these credit risks through the evaluation and monitoring of the creditworthiness of, and concentration of risk with, the respective counterparties. In this regard, credit risk associated with our derivative instruments is spread across a relatively broad counterparty base of banks and financial institutions. With the exception of a limited number of instances where we have required a counterparty to post collateral, neither party has posted collateral under the derivative instruments of our subsidiary borrowing groups. At June 30, 2017, our exposure to counterparty credit risk included derivative assets with an aggregate fair value of $1,131.4 million.

Details of our Derivative Instruments

Cross-currency Derivative Contracts

As noted above, we are exposed to foreign currency exchange rate risk in situations where our debt is denominated in a currency other than the functional currency of the operations whose cash flows support our ability to repay or refinance such debt. Although we generally seek to match the denomination of our and our subsidiaries’ borrowings with the functional currency of the operations that are supporting the respective borrowings, market conditions or other factors may cause us to enter into borrowing arrangements that are not denominated in the functional currency of the underlying operations (unmatched debt). Our policy is generally to provide for an economic hedge against foreign currency exchange rate movements by using derivative instruments to synthetically convert unmatched debt into the applicable underlying currency. At June 30, 2017, substantially all of our debt was either directly or synthetically matched to the applicable functional currencies of the underlying operations. The following table sets forth the total notional amounts and the related weighted average remaining contractual life of our cross-currency swap contracts at June 30, 2017:
Borrowing group
 
Notional amount due from counterparty
 
Notional amount due to counterparty
 
 
Weighted average remaining life
 
 
in millions
 
 
in years
 
 
 
 
 
 
 
 
 
 
Virgin Media
 
$
400.0

 
€
339.6

 
 
5.5
 
 
$
8,933.0

 
£
5,844.3

 
(a) (b)
6.2
 
 
£
30.3

 
$
50.0

 
(a)
2.3
 
 
 
 
 
 
 
 
 
 
UPC Holding
 
$
2,390.0

 
€
1,973.7

 
 
6.4
 
 
€
379.2

 
$
425.0

 
(a)
7.2
 
 
$
1,000.0

 
CHF
922.0

 
(b)
6.6
 
 
€
2,415.2

 
CHF
2,781.0

 
 
5.6
 
 
€
418.5

 
CZK
11,521.8

 
 
3.0
 
 
€
488.0

 
HUF
138,437.5

 
 
4.5
 
 
€
851.6

 
PLN
3,604.5

 
 
4.2
 
 
€
225.9

 
RON
650.0

 
 
4.6
 
 
 
 
 
 
 
 
 
 
Unitymedia
 
$
3,305.0

 
€
2,562.1

 
(b)
6.2
 
 
€
89.4

 
$
100.0

 
 
5.5
 
 
 
 
 
 
 
 
 
 
Telenet
 
$
2,300.0

 
€
2,067.6

 
 
7.6
 
 
€
520.1

 
$
595.0

 
(a)
7.0
 
 
 
 
 
 
 
 
 
 
CWC
 
$
108.3

 
JMD
13,817.5

 
 
5.5
 
 
£
146.7

 
$
194.3

 
 
1.7
 
 
 
 
 
 
 
 
 
 
VTR Finance
 
$
1,400.0

 
CLP
951,390.0

 
 
4.8
_______________ 

(a)
Includes certain derivative instruments that do not involve the exchange of notional amounts at the inception and maturity of the instruments. Accordingly, the only cash flows associated with these derivative instruments are interest-related payments and receipts. At June 30, 2017, the total U.S. dollar equivalents of the notional amounts of these derivative instruments for the Virgin Media, UPC Holding and Telenet borrowing groups were $514.4 million, $432.8 million and $593.5 million, respectively.

(b)
Includes certain derivative instruments that are “forward-starting,” such that the initial exchange occurs at a date subsequent to June 30, 2017. These instruments are typically entered into in order to extend existing hedges without the need to amend existing contracts.

Interest Rate Derivative Contracts

As noted above, we enter into interest rate swaps to protect against increases in the interest rates on our variable-rate debt. Pursuant to these derivative instruments, we typically pay fixed interest rates and receive variable interest rates on specified notional amounts. The following table sets forth the total U.S. dollar equivalents of the notional amounts and the related weighted average remaining contractual life of our interest rate swap contracts at June 30, 2017:
Borrowing group
 
Notional amount due from counterparty
 
Weighted average remaining life
 
 
in millions
 
in years
 
 
 
 
 
Virgin Media (a)
$
8,492.7

 
5.1
 
 
 
 
 
UPC Holding (a)
$
4,930.2

 
6.2
 
 
 
 
 
Unitymedia
$
306.1

 
5.5
 
 
 
 
 
Telenet (a)
$
6,144.7

 
5.7
 
 
 
 
 
CWC (a)
$
2,225.0

 
6.6
 
 
 
 
 
Liberty Puerto Rico
$
675.0

 
3.8

_______________ 

(a)
Includes forward-starting derivative instruments.

Basis Swaps

Our basis swaps involve the exchange of attributes used to calculate our floating interest rates, including (i) the benchmark rate, (ii) the underlying currency and/or (iii) the borrowing period. We typically enter into these swaps to optimize our interest rate profile based on our current evaluations of yield curves, our risk management policies and other factors. The following table sets forth the total U.S. dollar equivalents of the notional amounts and related weighted average remaining contractual life of our basis swap contracts at June 30, 2017:
Borrowing group
 
Notional amount due from counterparty
 
Weighted average remaining life
 
 
in millions
 
in years
 
 
 
 
 
Virgin Media
$
4,525.1

 
0.5
 
 
 
 
 
UPC Holding (a)
$
4,300.0

 
1.0
 
 
 
 
 
Unitymedia (a)
$
855.0

 
1.2
 
 
 
 
 
Telenet (a)
$
4,100.0

 
1.0
 
 
 
 
 
CWC (a)
$
2,225.0

 
1.0
_______________

(a)
Includes forward-starting derivative instruments.

Interest Rate Caps and Collars

We enter into interest rate cap and collar agreements that lock in a maximum interest rate if variable rates rise, but also allow our company to benefit, to a limited extent in the case of collars, from declines in market rates. At June 30, 2017, the total U.S. dollar equivalents of the notional amounts of our interest rate caps and collars were $1,246.5 million and $1,295.4 million, respectively.

Impact of Derivative Instruments on Borrowing Costs

The impact of the derivative instruments that mitigate our foreign currency and interest rate risk, as described above, on our borrowing costs is as follows:
 
 
Increase (decrease) to borrowing costs at June 30, 2017 (a)
 
 
 
 
 
 
 
 
Liberty Global Group borrowing groups
(0.03
)%
 
Virgin Media
0.07
 %
 
Telenet
(0.34
)%
 
Unitymedia
(0.27
)%
 
UPC Holding
0.33
 %
LiLAC Group borrowing groups
0.30
 %
 
CWC
0.47
 %
 
VTR Finance
(0.52
)%
 
Liberty Puerto Rico
0.86
 %

_______________ 

(a)
Represents the effect of derivative instruments in effect at June 30, 2017 and does not include forward-starting derivative instruments.

Foreign Currency Forwards and Options

Certain of our subsidiaries enter into foreign currency forward and option contracts with respect to non-functional currency exposure. As of June 30, 2017, the total U.S. dollar equivalents of the notional amount of foreign currency forward and option contracts was $1,436.5 million.

Equity-related Derivatives

On May 22, 2017, we settled the third tranches of the Sumitomo Collar ($51.0 million asset on the settlement date) and related borrowings (the Sumitomo Collar Loan) ($169.9 million liability on the settlement date) with shares of Sumitomo that were borrowed pursuant to a securities lending arrangement (the Sumitomo Share Loan). The aggregate market value of the borrowed Sumitomo shares on the transaction date was $117.4 million.