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Derivative Instruments
 9 Months Ended
Sep. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments Derivative Instruments

In general, we enter into derivative instruments to protect against (i) increases in the interest rates on our variable-rate debt, (ii) foreign currency movements, particularly with respect to borrowings that are denominated in a currency other than the functional currency of the borrowing entity, 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 primarily with respect to the U.S. dollar ($), the euro (€), the British pound sterling (£), the Swiss franc (CHF), the Hungarian forint (HUF) and the Polish zloty (PLN). 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:
 
September 30, 2019
 
December 31, 2018
 
Current
 
Long-term
 
Total
 
Current
 
Long-term
 
Total
 
in millions
Assets (a):
 
 
 
 
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts (b)
$
406.7

 
$
2,115.0

 
$
2,521.7

 
$
372.7

 
$
1,370.1

 
$
1,742.8

Equity-related derivative instruments (c)
—

 
736.3

 
736.3

 
13.9

 
732.4

 
746.3

Foreign currency forward and option contracts
11.9

 
2.8

 
14.7

 
7.2

 
—

 
7.2

Other
0.2

 
0.1

 
0.3

 
0.4

 
—

 
0.4

Total
$
418.8


$
2,854.2


$
3,273.0


$
394.2


$
2,102.5


$
2,496.7

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities (a):
 
 
 
 
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts (b)
$
397.0

 
$
1,185.6

 
$
1,582.6

 
$
326.5

 
$
1,042.2

 
$
1,368.7

Equity-related derivative instruments (c)
0.6

 
—

 
0.6

 
1.4

 
—

 
1.4

Foreign currency forward and option contracts
0.3

 
—

 
0.3

 
0.5

 
—

 
0.5

Other
—

 
0.1

 
0.1

 
—

 
0.1

 
0.1

Total
$
397.9


$
1,185.7


$
1,583.6


$
328.4


$
1,042.3


$
1,370.7

_______________ 

(a)
Our current derivative liabilities, long-term derivative assets and long-term derivative liabilities are included in other current and accrued liabilities, other assets, net, and other long-term liabilities, respectively, on 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 subsidiary borrowing groups (as defined and described in note 9). The changes in the credit risk valuation adjustments associated with our cross-currency and interest rate derivative contracts resulted in net losses of $14.1 million and $23.9 million during the three months ended September 30, 2019 and 2018, respectively, and $84.8 million and $51.8 million during the nine months ended September 30, 2019 and 2018, respectively. These amounts are included in realized and unrealized gains on derivative instruments, net, in our condensed consolidated statements of operations. For further information regarding our fair value measurements, see note 7.

(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 and (ii) the Lionsgate Forward, as defined and described below. The fair values of the ITV 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 on derivative instruments, net, are as follows:
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2019
 
2018
 
2019
 
2018
 
in millions
Cross-currency and interest rate derivative contracts
$
567.3

 
$
(18.4
)
 
$
549.1

 
$
489.8

Equity-related derivative instruments:
 
 
 
 
 

 
ITV Collar
(106.8
)
 
76.5

 
(7.0
)
 
16.5

Lionsgate Forward
5.5

 
0.2

 
15.1

 
12.6

Sumitomo Collar
—

 
—

 
—

 
(11.8
)
Other
0.5

 
0.2

 
0.9

 
2.4

Total equity-related derivative instruments
(100.8
)
 
76.9

 
9.0


19.7

Foreign currency forward and option contracts
116.3

 
6.7

 
94.1

 
20.6

Other
(0.7
)
 
0.3

 
—

 
(0.4
)
Total
$
582.1


$
65.5


$
652.2


$
529.7


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 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 following table sets forth the classification of the net cash inflows of our derivative instruments:
 
Nine months ended
 
September 30,
 
2019
 
2018
 
in millions
Operating activities
$
(73.1
)
 
$
34.3

Financing activities
136.9

 
46.6

Total
$
63.8

 
$
80.9



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 September 30, 2019, our exposure to counterparty credit risk included derivative assets with an aggregate fair value of $1,015.8 million.

Details of our Derivative Instruments

Cross-currency Derivative Contracts

We generally match the denomination of our subsidiaries’ borrowings with the functional currency of the supporting operations or, when it is more cost effective, we 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 September 30, 2019, 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 lives of our cross-currency swap contracts at September 30, 2019:
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

 
 
3.3
 
 
 
$
8,036.4

 
£
5,451.8

(a)
 
4.8
 
 
 
£
2,365.8

 
$
3,400.0

(b)
 
5.3
 
 
 
 
 
 
 
 
 
 
 
UPC Holding
 
$
2,420.0

 
€
1,999.4

 
 
4.8
 
 
 
$
1,200.0

 
CHF
1,107.5

(a)
 
5.5
 
 
 
€
2,824.4

 
CHF
3,221.2

(a)
 
4.6
 
 
 
€
742.8

 
PLN
3,149.5

 
 
2.2
 
 
 
€
78.0

 
HUF
19,500.0

 
 
2.3
 
 
 
HUF
19,500.0

 
€
61.0

 
 
2.3
 
 
 
 
 
 
 
 
 
 
 
Telenet
 
$
3,670.0

 
€
3,243.6

(a)
 
5.8
 
 
 
€
1,431.2

 
$
1,600.0

(b)
 
5.7
_______________ 

(a)
Includes certain derivative instruments that are “forward-starting,” such that the initial exchange occurs at a date subsequent to September 30, 2019. These instruments are typically entered into in order to extend existing hedges without the need to amend existing contracts.

(b)
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 coupon-related payments and receipts. At September 30, 2019, the total U.S. dollar equivalent of the notional amounts of these derivative instruments was $4.5 billion.

Interest Rate Swap Contracts

The following table sets forth the total U.S. dollar equivalents of the notional amounts and the related weighted average remaining contractual lives of our interest rate swap contracts at September 30, 2019:
 
 
 
Borrowing group
pays fixed rate
 
Borrowing group
receives fixed rate
Borrowing group
 
 
Notional
amount
 
Weighted average remaining life
 
Notional
amount
 
Weighted average remaining life
 
 
 
in millions
 
in years
 
in millions
 
in years
 
 
 
 
 
 
 
 
 
 
 
 
Virgin Media
 
$
20,206.4

(a)
 
2.9
 
$
11,211.3

(a)
 
4.6
 
 
 
 
 
 
 
 
 
 
 
 
UPC Holding
 
$
7,735.3

(a)
 
3.7
 
$
5,171.9

 
 
6.1
 
 
 
 
 
 
 
 
 
 
 
 
Telenet
 
$
3,668.5

(a)
 
4.5
 
$
1,555.9

 
 
4.0
_______________ 

(a)
Includes forward-starting derivative instruments.

Interest Rate Swap Options

We have entered into various interest rate swap options (swaptions), which give us the right, but not the obligation, to enter into certain interest rate swap contracts at set dates in the future, with each such contract having a life of no more than three years. At the transaction date, the strike rate of each of these contracts was above the corresponding market rate. The following table sets forth certain information regarding our swaptions at September 30, 2019:
Borrowing group
 
 
Notional amount
 
Underlying swap currency
 
Weighted average option expiration period (a)
 
Weighted average strike rate (b)
 
 
 
in millions
 
 
 
in years
 
 
 
 
 
 
 
 
 
 
 
 
Virgin Media
 
$
6,565.9

 
£
 
1.2
 
2.40%
 
 
 
$
468.7

 
€
 
0.8
 
1.96%
______________ 

(a)
Represents the weighted average period until the date on which we have the option to enter into the interest rate swap contracts.

(b)
Represents the weighted average interest rate that we would pay if we exercised our option to enter into the interest rate swap contracts.

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 lives of our basis swap contracts at September 30, 2019:
Borrowing group
 
 
Notional amount due from counterparty
 
Weighted average remaining life
 
 
 
in millions
 
in years
 
 
 
 
 
 
Virgin Media
 
$
4,506.1

 
0.8
 
 
 
 
 
 
Telenet
 
$
2,075.0

 
0.8

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 September 30, 2019, the total U.S. dollar equivalents of the notional amounts of our interest rate caps and collars were $245.8 million and $618.7 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:
Borrowing group
 
 
Decrease to
borrowing costs at
September 30, 2019 (a)
 
 
 
 
Virgin Media
 
(0.44
)%
UPC Holding
 
(0.83
)%
Telenet
 
(0.54
)%
Total decrease to borrowing costs
 
(0.51
)%
_______________ 

(a)
Represents the effect of derivative instruments in effect at September 30, 2019 and does not include forward-starting derivative instruments or swaptions.

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 September 30, 2019, the total U.S. dollar equivalent of the notional amounts of our foreign currency forward and option contracts was $2,754.8 million.

Equity-related Derivatives

During the period from July 25, 2019 to August 28, 2019, we cash settled the first 25 tranches of a prepaid forward (the Lionsgate Forward) with respect to certain of our voting and non-voting Lionsgate shares. Subsequent to the settlement of these tranches of the Lionsgate Forward ($18.1 million asset value on the relevant settlement dates) and the related borrowings under the Lionsgate Loan ($27.6 million liability on the relevant settlement dates), the shares collateralized under the Lionsgate Loan were reduced to a pledge of 833,333 of our voting and 833,334 of our non-voting Lionsgate shares.