XML 26 R14.htm IDEA: XBRL DOCUMENT v3.20.2
Derivative Instruments
 9 Months Ended
Sep. 30, 2020
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) 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, 2020
 
December 31, 2019
 
Current
 
Long-term
 
Total
 
Current
 
Long-term
 
Total
 
in millions
Assets (a):
 
 
 
 
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts (b)
$
97.6

 
$
431.9

 
$
529.5

 
$
270.8

 
$
886.4

 
$
1,157.2

Equity-related derivative instruments (c)
302.7

 
437.0

 
739.7

 
55.2

 
608.2

 
663.4

Foreign currency forward and option contracts
30.4

 
0.3

 
30.7

 
4.6

 
1.4

 
6.0

Other
—

 
0.3

 
0.3

 
0.5

 
0.4

 
0.9

Total
$
430.7

 
$
869.5

 
$
1,300.2

 
$
331.1

 
$
1,496.4

 
$
1,827.5

Liabilities (a):
 
 
 
 
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts (b)
$
179.7

 
$
962.5

 
$
1,142.2

 
$
389.2

 
$
1,192.3

 
$
1,581.5

Foreign currency forward and option contracts
37.5

 
—

 
37.5

 
1.2

 
—

 
1.2

Other
0.1

 
—

 
0.1

 
—

 
—

 
—

Total
$
217.3

 
$
962.5

 
$
1,179.8

 
$
390.4

 
$
1,192.3

 
$
1,582.7

_______________ 

(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 a net gain (loss) of $222.6 million and ($14.1 million) during the three months ended September 30, 2020 and 2019, respectively, and $294.3 million and ($84.8 million) during the nine months ended September 30, 2020 and 2019, 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 7.

(c)
Our equity-related derivative instruments primarily include the ITV Collar and, as of December 31, 2019, the Lionsgate Forward, as defined and described below. The fair value of the ITV Collar does 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 arrangement.

The details of our realized and unrealized gains (losses) on derivative instruments, net, are as follows:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2020
 
2019
 
2020
 
2019
 
in millions
 
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts
$
(755.4
)
 
$
567.3

 
$
(222.5
)
 
$
549.1

Equity-related derivative instruments:
 
 
 
 
 
 
 
ITV Collar
82.9

 
(106.8
)
 
433.2

 
(7.0
)
Lionsgate Forward
(5.7
)
 
5.5

 
0.8

 
15.1

Other
(0.1
)
 
0.5

 
20.7

 
0.9

Total equity-related derivative instruments
77.1

 
(100.8
)
 
454.7

 
9.0

Foreign currency forward and option contracts
(39.2
)
 
116.3

 
(31.8
)
 
94.1

Other
(0.3
)
 
(0.7
)
 
(0.6
)
 
—

Total
$
(717.8
)
 
$
582.1

 
$
199.8

 
$
652.2


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 outflows of our derivative instruments:
 
Nine months ended
September 30,
 
2020
 
2019
 
in millions
 
 
 
 
Operating activities
$
(215.5
)
 
$
(73.1
)
Investing activities
(28.7
)
 
—

Financing activities
72.6

 
136.9

Total
$
(171.6
)
 
$
63.8



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, 2020, our exposure to counterparty credit risk included derivative assets with an aggregate fair value of $80.8 million.

Details of our Derivative Instruments

The details of our derivative contracts are presented below for the named entity and its subsidiaries, unless otherwise noted.

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, 2020, 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, 2020:
 
 
Notional amount
due from counterparty
 
Notional amount
due to counterparty
 
Weighted average remaining life
 
 
in millions
 
 
in years
 
 
 
 
 
 
 
 
 
 
UPC Holding
$
360.0

 
€
267.9

 
 
5.0
 
 
$
1,600.0

 
CHF
1,476.1

(a)
 
5.7
 
 
€
2,618.3

 
CHF
2,941.4

(a)
 
3.9
 
 
€
707.0

 
PLN
2,999.5

 
 
3.6
 
 
CHF
740.0

 
€
701.1

 
 
2.3
 
 
 
 
 
 
 
 
 
 
Telenet
$
3,940.0

 
€
3,489.6

(a)
 
6.3
 
 
€
45.2

 
$
50.0

(b)
 
4.3
_______________ 

(a)
Includes certain derivative instruments that are “forward-starting,” such that the initial exchange occurs at a date subsequent to September 30, 2020. 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, 2020, the total U.S. dollar equivalent of the notional amount of these derivative instruments was $52.9 million.

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, 2020:
 
 
Pays fixed rate
 
Receives fixed rate
 
 
Notional
amount
 
Weighted average remaining life
 
Notional
amount
 
Weighted average remaining life
 
 
in millions
 
in years
 
in millions
 
in years
 
 
 
 
 
 
 
 
 
 
 
UPC Holding
$
10,617.8

(a)
 
3.8
 
$
4,772.3

 
 
5.2
 
 
 
 
 
 
 
 
 
 
 
Telenet
$
3,381.3

(a)
 
4.5
 
$
1,672.7

 
 
3.0
 
 
 
 
 
 
 
 
 
 
 
Other
$
98.8

 
 
3.2
 
$
—

 
 
—
_______________ 

(a)
Includes forward-starting derivative instruments.
Interest Rate Swap Options

From time to time, we enter into 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. Such contracts typically have a life of no more than three years. At September 30, 2020, the option expiration period on each of our swaptions had expired.

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, 2020:
 
 
Notional amount due from counterparty
 
Weighted average remaining life
 
 
in millions
 
in years
 
 
 
 
 
UPC Holding
$
700.0

 
0.3
 
 
 
 
 
Telenet
$
2,295.0

 
0.3
 
 
 
 
 
Other
$
98.8

 
0.3

Interest Rate Caps, Floors and Collars

From time to time, we enter into interest rate cap, floor and collar agreements. Purchased interest rate caps and collars 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. Purchased interest rate floors protect us from interest rates falling below a certain level, generally to match a floating rate floor on a debt instrument. At September 30, 2020, we had no interest rate collar agreements, and the total U.S. dollar equivalents of the notional amounts of our purchased interest rate caps and floors were $468.9 million and $4,838.9 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 to
borrowing costs at
September 30, 2020 (a)
 
 
 
UPC Holding
0.24
%
Telenet
0.31
%
 
 
Total increase to borrowing costs
0.26
%
_______________ 

(a)
Represents the effect of derivative instruments in effect at September 30, 2020 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 September 30, 2020, the total U.S. dollar equivalent of the notional amounts of our foreign currency forward and option contracts was $4.6 billion.

Equity-related Derivatives

During the third quarter of 2020, we cash settled the remaining tranches of a prepaid forward (the Lionsgate Forward) with respect to 833,333 of our voting and 833,334 of our non-voting Lionsgate shares and the related borrowings under the Lionsgate Loan. Accordingly, as of September 30, 2020, the Lionsgate Forward and Lionsgate Loan are fully settled.