Derivative Financial Instruments and Hedging Activities

We are exposed to certain risks arising from both our business operations and economic conditions. We manage economic risks, including interest rate risk, primarily by managing the amount, sources, and duration of our assets and liabilities and by using derivative financial instruments. Specifically, we enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our known or expected cash receipts and our known or expected cash payments principally related to our borrowings.

Certain of our foreign operations expose us to fluctuations of foreign interest rates and exchange rates. We primarily finance our earning assets with debt in the same currency to minimize the impact to earnings from our exposure to fluctuations in exchange rates. When we use a different currency, these fluctuations may impact the value of our cash receipts and payments in terms of our functional currency. We enter into derivative financial instruments to protect the value or fix the amount of certain assets and liabilities in terms of the relevant functional currency. The table below presents the gross fair value amounts of our derivative financial instruments and the associated notional amounts:



	March 31, 2020						December 31, 2019
	Notional		Fair Value of Assets^(a)		Fair Value of Liabilities^(a)		Notional		Fair Value of Assets^(a)		Fair Value of Liabilities^(a)
Derivatives designated as hedges
Fair value hedges
Interest rate swaps	$	8,681	$	640	$	—	$	9,458	$	234	$	23
Foreign currency swaps	1,755		—		84		1,796		22		71
Cash flow hedges
Interest rate swaps	1,090		—		21		590		—		6
Foreign currency swaps	5,091		41		373		4,429		40		119
Derivatives not designated as hedges
Interest rate contracts	104,282		843		772		92,400		340		300
Total^(b)	$	120,899	$	1,524	$	1,250	$	108,673	$	636	$	519

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(a)

The gross amounts of the fair value of our assets and liabilities are included in other assets and other liabilities, respectively. Amounts accrued for interest payments in a net receivable position are included in other assets. Amounts accrued for interest payments in a net payable position are included in other liabilities. All our derivatives are categorized within Level 2 of the fair value hierarchy. The fair value for Level 2 instruments was derived using the market approach based on observable market inputs including quoted prices of similar instruments and foreign exchange and interest rate forward curves.

(b)

We primarily enter into derivative instruments through AmeriCredit Financial Services, Inc. (AFSI); however, our SPEs may also be parties to derivative instruments. Agreements between AFSI and its derivative counterparties include rights of setoff for positions with offsetting values or for collateral held or posted. At March 31, 2020 and December 31, 2019, the fair value of assets and liabilities available for offset was $685 million and $302 million. At March 31, 2020 and December 31, 2019, we held $668 million and $210 million of collateral from counterparties that is available for netting against our asset positions. At March 31, 2020 and December 31, 2019, we posted $270 million and $89 million of collateral to counterparties that is available for netting against our liability positions.

The following amounts were recorded in the condensed consolidated balance sheet related to items designated and qualifying as hedged items in fair value hedging relationships:



	Carrying Amount of Hedged Items				Cumulative Amount of Fair Value Hedging Adjustments^(a)
	March 31, 2020		December 31, 2019		March 31, 2020			December 31, 2019
Unsecured debt	$	22,082	$	20,397	$	(539	)	$	(77	)

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(a)	Includes $9 million and $69 million at March 31, 2020 and December 31, 2019 of amortization remaining on hedged items for which hedge accounting has been discontinued.

The tables below present the effect of our derivative financial instruments in the condensed consolidated statements of income:



	Three Months Ended March 31,
	2020						2019
	Interest Expense^(a)			Operating Expenses^(b)			Interest Expense^(a)			Operating Expenses^(b)
Fair value hedges
Hedged items - interest rate swaps	$	(503	)	$	—		$	(210	)	$	—
Interest rate swaps	431			—			181			—
Hedged items - foreign currency swaps	—			40			—			32
Foreign currency swaps	(12		)	(39		)	(16		)	(31		)
Cash flow hedges
Interest rate swaps	(1		)	—			3			—
Foreign currency swaps	(29		)	(106		)	(18		)	(33		)
Derivatives not designated as hedges
Interest rate contracts	52			—			(5		)	—
Total (losses) income recognized	$	(62	)	$	(105	)	$	(65	)	$	(32	)

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(a)	Total interest expense was $835 million and $947 million for the three months ended March 31, 2020 and 2019.


(b)	Activity is offset by translation activity also recorded in operating expenses related to foreign currency-denominated loans. Total operating expenses were $358 million and $370 million for the three months ended March 31, 2020 and 2019.

The tables below present the effect of our derivative financial instruments in the condensed consolidated statements of comprehensive income:



	Gains (Losses) Recognized In Accumulated Other Comprehensive Loss
	Three Months Ended March 31,
	2020			2019
Fair value hedges
Foreign currency swaps	$	(5	)	$	(11	)
Cash flow hedges
Interest rate swaps	(6		)	—
Foreign currency swaps	(219		)	(52		)
Total	$	(230	)	$	(63	)



	(Gains) Losses Reclassified From Accumulated Other Comprehensive Loss Into Income^(a)(b)
	Three Months Ended March 31,
	2020		2019
Fair value hedges
Foreign currency swaps	$	8	$	11
Cash flow hedges
Interest rate swaps	1		(2		)
Foreign currency swaps	104		39
Total	$	113	$	48

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(a)	All amounts reclassified from accumulated other comprehensive loss were recorded to interest expense.


(b)	During the next twelve months, we estimate $54 million in gains will be reclassified into pretax earnings from derivatives designated for hedge accounting.