Derivative Financial Instruments

9 Months Ended

Feb. 28, 2014

Derivative Financial Instruments

Derivative Financial Instruments

(8) Derivative Financial Instruments

We are an end user of financial derivative instruments and not a swap dealer. We utilize derivatives such as interest rate swaps and treasury rate locks to manage our interest rate risk exposure.

The following table shows the notional amounts outstanding and the weighted-average rate paid and received for our interest rate swaps by type:

	February 28, 2014								May 31, 2013
(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-receive variable	$	5,172,809		3.36	%		0.22	%	$	5,287,889	3.39	%	0.26	%
Pay variable-receive fixed		3,124,000		0.86			3.62			3,500,440	1.12		4.62
Total interest rate swaps	$	8,296,809		2.42			1.50		$	8,788,329	2.49		2.00

The derivative gains (losses) line item of the condensed consolidated statement of operations includes cash settlements and derivative forward value for derivative instruments that do not meet hedge accounting criteria. Gains and losses recorded on the condensed consolidated statements of operations for our interest rate swaps are summarized below:

	Three Months Ended  February 28,				Nine Months Ended  February 28,
(Dollars in thousands)	2014		2013		2014		2013
Derivative cash settlements	$	(18,788)	$	(14,607)	$	(54,944)	$	(43,926)
Derivative forward value		(12,835)		61,233		98,925		62,194
Derivative (losses) gains	$	(31,623)	$	46,626	$	43,981	$	18,268

Rating Triggers for Derivatives

Some of our interest rate swaps have credit risk-related contingent features referred to as rating triggers. Rating triggers are not separate financial instruments and are not required to be accounted for separately as derivatives. At February 28, 2014, the following notional amounts of derivative instruments had rating triggers based on our senior unsecured credit ratings from Moody’s Investors Service or Standard & Poor’s Corporation falling to a level specified in the applicable agreements and are grouped into the categories below. In calculating the payments and collections required upon termination, we netted the agreements for each counterparty, as allowed by the underlying master agreements. At February 28, 2014, our senior unsecured credit ratings from Moody’s Investors Service and Standard & Poor’s Corporation were A2 and A, respectively. At February 28, 2014, both Moody’s Investors Service and Standard & Poor’s Corporation had our ratings on stable outlook.

(Dollars in thousands)	Notional  Amount		Our Required  Payment		Amount We  Would Collect		Net  Total
Mutual rating trigger if ratings:
fall to Baa1/BBB+ (1)	$	-	$	-	$	-	$	-
fall below Baa1/BBB+ (1)		6,576,953		(160,733)		75,860		(84,873)
Total	$	6,576,953	$	(160,733)	$	75,860	$	(84,873)

(1) Stated senior unsecured credit ratings are for Moody’s Investors Service and Standard & Poor’s Corporation, respectively. Under these rating triggers, if the credit rating for either counterparty falls to the level specified in the agreement, the other counterparty may, but is not obligated to, terminate the agreement. If either counterparty terminates the agreement, a net payment may be due from one counterparty to the other based on the fair value, excluding credit risk, of the underlying derivative instrument.

In addition to the rating triggers listed in the preceding table, at February 28, 2014, we had a total notional outstanding amount of $450 million of derivative instruments with one counterparty that would require the pledging of collateral totaling $9 million (the fair value of such derivative instruments excluding credit risk) if our senior unsecured ratings from Moody’s Investors Service were to fall below Baa2 or if the ratings from Standard & Poor’s Corporation were to fall below BBB. The aggregate fair value, net of the credit risk valuation adjustment, of all interest rate swaps with rating triggers that were in a net liability position at February 28, 2014 was $167 million.

Offsetting Derivatives Assets and Liabilities

As noted previously, 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 to the transaction. Notwithstanding netting provisions, our derivative assets and liabilities are not offset in the accompanying condensed consolidated balance sheets. The following table provides information on the gross fair value of derivative assets and liabilities and the gross amounts that are not offset in the condensed consolidated balance sheets.

	February 28, 2014
	Gross Amounts		Gross		Net Amounts of  Assets/ Liabilities		Gross Amounts  Not Offset in the  Balance Sheet
(Dollars in thousands)	of Recognized  Assets/  Liabilities		Amounts  Offset in the  Balance Sheet		Presented  in the  Balance Sheet		Financial  Instruments		Cash  Collateral  Pledged		Net  Amount
Assets:
Derivatives - Interest rate swaps	$	261,598	$	-	$	261,598	$	193,733	$	-	$	67,865
Liabilities:
Derivatives - Interest rate swaps		380,518		-		380,518		193,733		-		186,785

	May 31, 2013
	Gross Amounts		Gross		Net Amounts of  Assets/ Liabilities		Gross Amounts  Not Offset in the  Balance Sheet
(Dollars in thousands)	of Recognized  Assets/  Liabilities		Amounts  Offset in the  Balance Sheet		Presented  in the  Balance Sheet		Financial Instruments		Cash  Collateral  Pledged		Net  Amount
Assets:
Derivatives - Interest rate swaps	$	257,878	$	-	$	257,878	$	203,161	$	-	$	54,717
Liabilities:
Derivatives - Interest rate swaps		475,278		-		475,278		203,161		-		272,117