Derivative Instruments and Hedging Activities

12 Months Ended

May 31, 2026

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

NOTE 10—DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We are an end user of derivative financial instruments and do not engage in derivative trading. Derivatives may be privately negotiated contracts, which are often referred to as OTC derivatives, or they may be listed and traded on an exchange. We generally engage in OTC derivative transactions. Our derivative instruments are an integral part of our interest rate risk-management strategy. Our principal purpose in using derivatives is to manage our aggregate interest rate risk profile within prescribed risk parameters. The derivative instruments we use primarily consist of interest rate swaps, which we typically hold to maturity. In addition, we may use treasury locks to manage the interest rate risk associated with future debt issuance or debt that is scheduled to reprice in the future. We typically designate the treasury locks as cash flow hedges.

Notional Amount and Maturities of Derivatives Not Designated as Accounting Hedges

The notional amount is used only as the basis on which interest payments are determined and is not the amount exchanged, nor recorded on our consolidated balance sheets. The following table shows, by derivative instrument type, the notional amount, the weighted-average interest rate paid and the weighted-average interest rate received for our interest rate swaps as of May 31, 2026 and 2025. For the substantial majority of interest rate swap agreements, SOFR is used as the basis for determining variable interest payment amounts each period.

Table 10.1: Derivative Notional Amount and Weighted-Average Rates

	May 31,
	2026						2025
(Dollars in thousands)	Notional Amount		Weighted- Average Rate Paid		Weighted- Average Rate Received		Notional Amount		Weighted- Average Rate Paid		Weighted- Average Rate Received
Pay-fixed swaps	$	5,380,215	2.84	%	3.83	%	$	5,833,458	2.84	%	4.54	%
Receive-fixed swaps	1,163,968		3.94		3.80		1,418,777		5.08		3.39
Total interest rate swaps	$	6,544,183	3.03		3.82		$	7,252,235	3.28		4.32
Forward pay-fixed swaps	21,350						—
Total interest rate swaps	$	6,565,533					$	7,252,235

The following table presents the notional amount of our interest rate swaps maturing in each of the five fiscal years subsequent to May 31, 2026 and thereafter.

Table 10.2: Derivative Notional Amount Maturities

	Notional Amount	Notional Amortization and Maturities
(Dollars in thousands)		2027	2028	2029	2030	2031	Thereafter
Interest rate swaps	$6,565,533	$615,302	$312,308	$705,466	$344,160	$424,141	$4,164,156

Cash Flow Hedges

During FY2025, we executed five treasury lock agreements with an aggregate notional amount of $700 million to hedge interest rate risk on anticipated debt issuances. We terminated the treasury locks upon the pricing of the debt issuances and recorded a net gain of $1 million in AOCI, which is reclassified into interest expense over the terms of the related debt.

During FY2024, we executed two treasury lock agreements with an aggregate notional amount of $300 million to hedge interest rate risk on anticipated debt issuances. We terminated the treasury locks upon the pricing of the anticipated debt and recorded a net settlement gain of less than $1 million in AOCI during FY2024, which is reclassified into interest expense over the term of the related debt. In addition, during FY2024, we reclassified an $8 million gain related to prior settled treasury locks from AOCI to earnings as a component of derivative gains (losses) in our consolidated statements of operations, as the hedged forecasted transaction did not occur in the time period specified in the hedge documentation.

We did not execute any treasury lock agreements during FY2026 and did not have any derivatives designated as accounting hedges as of May 31, 2026 and 2025.

Impact of Derivatives on Consolidated Balance Sheets

The following table displays the fair value of the derivative assets and derivative liabilities, by derivative type, recorded on our consolidated balance sheets and the related outstanding notional amount as of May 31, 2026 and 2025.

Table 10.3: Derivative Assets and Liabilities at Fair Value

	May 31,
	2026				2025
(Dollars in thousands)	Fair Value		Notional Amount (1)		Fair Value		Notional Amount
Derivative assets:
Interest rate swaps	$	554,116	$	5,550,124	$	555,855	$	5,694,835
Total derivative assets	$	554,116	$	5,550,124	$	555,855	$	5,694,835
Derivative liabilities:
Interest rate swaps	$	31,414	$	1,015,409	$	51,368	$	1,557,400
Total derivative liabilities	$	31,414	$	1,015,409	$	51,368	$	1,557,400

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(1)The notional amount as of May 31, 2026 included $21 million of forward starting swaps, as shown above in Table 10.1: Derivative Notional Amount and Weighted-Average Rates, with an effective start date in June 2026. The fair value of the swap as of May 31, 2026 is included in the above table and in our consolidated financial statements.

All of our master swap agreements include netting provisions that allow for offsetting of all contracts with a given counterparty in the event of default by one of the two parties. However, we report derivative asset and liability amounts on a gross basis by individual contract. The following table presents the gross fair value of derivative assets and liabilities

reported on our consolidated balance sheets as of May 31, 2026 and 2025, and provides information on the impact of netting provisions under our master swap agreements and collateral pledged, if any.

Table 10.4: Derivative Gross and Net Amounts

	May 31, 2026
	Gross Amount of Recognized Assets/ Liabilities		Gross Amount Offset in the Balance Sheet		Net Amount of Assets/ Liabilities Presented in the Balance Sheet		Gross Amount Not Offset in the Balance Sheet
(Dollars in thousands)							Financial Instruments		Cash Collateral Pledged		Net Amount
Derivative assets:
Interest rate swaps	$	554,116	$	—	$	554,116	$	30,572	$	—	$	523,544
Derivative liabilities:
Interest rate swaps	31,414		—		31,414		30,572		—		842

	May 31, 2025
	Gross Amount of Recognized Assets/ Liabilities		Gross Amount Offset in the Balance Sheet		Net Amount of Assets/ Liabilities Presented in the Balance Sheet		Gross Amount Not Offset in the Balance Sheet
(Dollars in thousands)							Financial Instruments		Cash Collateral Pledged		Net Amount
Derivative assets:
Interest rate swaps	$	555,855	$	—	$	555,855	$	49,806	$	—	$	506,049
Derivative liabilities:
Interest rate swaps	51,368		—		51,368		49,806		—		1,562

Impact of Derivatives on Consolidated Statements of Operations

The primary factors affecting the fair value of our derivatives and the derivative gains (losses) recorded in our consolidated statements of operations include changes in interest rates, the shape of the swap curve and the composition of our derivative portfolio. We generally record derivative losses when interest rates decline and derivative gains when interest rates rise, as our derivative portfolio consists of a higher proportion of pay-fixed swaps than receive-fixed swaps.

The following table presents the components of the derivative gains (losses) reported in our consolidated statements of operations. Derivative cash settlements interest income (expense) represents the net periodic contractual interest amount for our interest rate swaps during the reporting period. Derivative forward value gains (losses) represent the change in fair value of our interest rate swaps during the reporting period due to changes in expected future interest rates over the remaining life of our derivative contracts. We classify the derivative cash settlement amounts for the net periodic contractual interest expense on our interest rate swaps as an operating activity in our consolidated statements of cash flows.

Table 10.5: Derivative Gains (Losses)

	Year Ended May 31,
(Dollars in thousands)	2026		2025		2024
Derivative gains (losses) attributable to:
Derivative cash settlements interest income(1)	$	63,953	$	99,219	$	127,166
Derivative forward value gains (losses)	18,213		(105,070)		264,871
Derivative gains (losses)	$	82,166	$	(5,851)	$	392,037

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(1)During FY2026, in connection with the redemption of the 2043 Notes, we terminated $300 million in notional amount of our pay-fixed interest rate swaps hedging the 2043 Notes. The termination resulted in an immaterial amount of settlement gains recorded in derivative gains (losses) in our consolidated statements of operations. See “Note 8—Subordinated Deferrable Debt” for details on the redemption of the 2043 Notes.

Credit Risk-Related Contingent Features

Our derivative contracts typically contain mutual early-termination provisions, generally in the form of a credit rating trigger. Under the mutual credit rating trigger provisions, either counterparty may, but is not obligated to, terminate and settle the agreement if the credit rating of the other counterparty falls below a level specified in the agreement. If a derivative contract is terminated, the amount to be received or paid by us would be equal to the prevailing fair value, as defined in the agreement, as of the termination date.

During FY2026, Moody’s, S&P and Fitch affirmed CFC’s credit ratings and stable outlook. Our senior unsecured credit ratings from Moody’s, S&P and Fitch were A2, A- and A, respectively, as of May 31, 2026. Moody’s, S&P and Fitch had our ratings on stable outlook as of May 31, 2026. Our credit ratings and outlook remain unchanged as of the date of this Report.

The following table displays the notional amounts of our derivative contracts with mutual rating triggers as of May 31, 2026, and the payments that would be required if the contracts were terminated as of that date because of a downgrade of our unsecured credit ratings or the counterparty’s unsecured credit ratings below A3/A-, below Baa1/BBB+, to or below Baa2/BBB, or to or below Ba2/BB+ by Moody’s or S&P, respectively. In calculating the payment amounts that would be required upon termination of the derivative contracts, we assume that amounts for each counterparty would be netted in accordance with the provisions of the master netting agreements with the counterparty. The net payment amounts are based on the fair value of the underlying derivative instrument, excluding the credit risk valuation adjustment, plus any unpaid accrued interest amounts.

Table 10.6: Derivative Credit Rating Trigger Exposure

(Dollars in thousands)	Notional Amount		Payable Due from CFC		Receivable Due to CFC		Net Receivable (Payable)
Impact of rating downgrade trigger:
Falls below A3/A-(1)	$	14,000	$	(353)	$	—	$	(353)
Falls below Baa1/BBB+	3,315,616		(588)		258,627		258,039
Falls to or below Baa2/BBB(2)	436,761		—		22,332		22,332
Falls below Baa2/BBB	926,275		—		84,222		84,222
Total	$	4,692,652	$	(941)	$	365,181	$	364,240

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(1)Rating trigger for CFC falls below A3/A-, while rating trigger for counterparty falls below Baa1/BBB+ by Moody’s or S&P, respectively.

(2)Rating trigger for CFC falls to or below Baa2/BBB, while rating trigger for counterparty falls to or below Ba2/BB+ by Moody’s or S&P, respectively.

In addition, we have interest rate swaps with one counterparty that are subject to a ratings trigger and early termination provision in the event of a downgrade of CFC’s senior unsecured credit ratings below Baa3, BBB- or BBB- by Moody’s, S&P or Fitch, respectively. The outstanding notional amount of these swaps, which is not included in the above table, totaled $552 million as of May 31, 2026. These swaps were in an unrealized gain position of $39 million as of May 31, 2026.

The aggregate fair value amount, including the credit valuation adjustment, of all interest rate swaps with rating triggers that were in a net liability position was $1 million as of May 31, 2026.

Derivative Counterparty Credit Exposure

Our interest rate swap contracts are subject to credit risk associated with counterparties to these derivative contracts. As mentioned above, we generally engage in OTC derivative transactions, which expose us to individual counterparty credit risk because these transactions are executed and settled directly between us and each counterparty. To manage this risk, we diversify our derivative positions among counterparties with investment-grade credit ratings, perform an internal credit risk analysis and maintain enforceable master netting arrangements, allowing us to net derivative assets and liabilities with the same counterparty. The fair value of our derivatives includes credit valuation adjustments reflecting counterparty credit risk.

We had 12 active derivative counterparties with credit ratings ranging from Aa1 to Baa1 by Moody’s as of both May 31, 2026 and 2025, and from AA- to BBB+ by S&P as of both May 31, 2026 and 2025. Our largest counterparty exposure, based on the outstanding notional amount, accounted for approximately 25% of the total outstanding notional amount of our derivatives as of both May 31, 2026 and 2025. We believe our exposure to derivative counterparty risk, at any point in time, is equal to the amount of our outstanding derivatives in a net gain position, at the individual counterparty level based on the legally enforceable netting provisions under our master swap agreements, which totaled $524 million and $506 million as of May 31, 2026 and 2025, respectively, as presented in Table 10.4 above.