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Fair Value Measurements and Derivative Instruments | 9 Months Ended
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Sep. 30, 2020
Fair Value Disclosures [Abstract] |
Fair Value Measurements and Derivative Instruments | Fair Value Measurements and Derivative Instruments Fair Value Measurements The estimated fair value of our financial instruments that are not measured at fair value, categorized based upon the fair value hierarchy, are as follows (in thousands):
|  | Fair Value Measurements at September 30, 2020 Using |  | Fair Value Measurements at December 31, 2019 Using
Description |  | Total Carrying Amount |  | Total Fair Value |  | Level 1(1) |  | Level 2(2) |  | Level 3(3) |  | Total Carrying Amount |  | Total Fair Value |  | Level 1(1) |  | Level 2(2) |  | Level 3(3)
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents(4) |  | $ | 3,016,788 |  |  | $ | 3,016,788 |  |  | $ | 3,016,788 |  |  | $ | — |  |  | $ | — |  |  | $ | 243,738 |  |  | $ | 243,738 |  |  | $ | 243,738 |  |  | $ | — |  |  | $ | — |
Total Assets |  | $ | 3,016,788 |  |  | $ | 3,016,788 |  |  | $ | 3,016,788 |  |  | $ | — |  |  | $ | — |  |  | $ | 243,738 |  |  | $ | 243,738 |  |  | $ | 243,738 |  |  | $ | — |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Long-term debt (including current portion of debt)(5) |  | $ | 18,286,811 |  |  | $ | 19,876,822 |  |  | $ | — |  |  | $ | 19,876,822 |  |  | $ | — |  |  | $ | 9,370,438 |  |  | $ | 10,059,055 |  |  | $ | — |  |  | $ | 10,059,055 |  |  | $ | — |
Total Liabilities |  | $ | 18,286,811 |  |  | $ | 19,876,822 |  |  | $ | — |  |  | $ | 19,876,822 |  |  | $ | — |  |  | $ | 9,370,438 |  |  | $ | 10,059,055 |  |  | $ | — |  |  | $ | 10,059,055 |  |  | $ | — |
(1) Inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Valuation of these items does not entail a significant amount of judgment. (2) Inputs other than quoted prices included within Level 1 that are observable for the liability, either directly or indirectly. For unsecured revolving credit facilities and unsecured term loans, fair value is determined utilizing the income valuation approach. This valuation model takes into account the contract terms of our debt such as the debt maturity and the interest rate on the debt. The valuation model also takes into account the creditworthiness of the Company. (3) Inputs that are unobservable. The Company did not use any Level 3 inputs as of September 30, 2020 and December 31, 2019. (4) Consists of cash and marketable securities with original maturities of less than 90 days. (5) Consists of unsecured revolving credit facilities, senior notes, senior debentures and term loans. These amounts do not include our finance lease obligations or commercial paper. Other Financial Instruments The carrying amounts of accounts receivable, accounts payable, accrued interest, accrued expenses and commercial paper approximate fair value at September 30, 2020 and December 31, 2019. Assets and liabilities that are recorded at fair value have been categorized based upon the fair value hierarchy. The following table presents information about the Company’s financial instruments recorded at fair value on a recurring basis (in thousands):
|  | Fair Value Measurements at September 30, 2020 Using |  | Fair Value Measurements at December 31, 2019 Using
Description |  | Total |  | Level 1(1) |  | Level 2(2) |  | Level 3(3) |  | Total |  | Level 1(1) |  | Level 2(2) |  | Level 3(3)
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative financial instruments(4) |  | $ | 46,367 |  |  | $ | — |  |  | $ | 46,367 |  |  | $ | — |  |  | $ | 39,994 |  |  | $ | — |  |  | $ | 39,994 |  |  | $ | — |
Total Assets |  | $ | 46,367 |  |  | $ | — |  |  | $ | 46,367 |  |  | $ | — |  |  | $ | 39,994 |  |  | $ | — |  |  | $ | 39,994 |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative financial instruments(5) |  | $ | 363,955 |  |  | $ | — |  |  | $ | 363,955 |  |  | $ | — |  |  | $ | 257,728 |  |  | $ | — |  |  | $ | 257,728 |  |  | $ | — |
Contingent consideration (6) |  | — |  |  | — |  |  | — |  |  | — |  |  | 62,400 |  |  | — |  |  | — |  |  | 62,400 |
Total Liabilities |  | $ | 363,955 |  |  | $ | — |  |  | $ | 363,955 |  |  | $ | — |  |  | $ | 320,128 |  |  | $ | — |  |  | $ | 257,728 |  |  | $ | 62,400 |
(1)Inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Valuation of these items does not entail a significant amount of judgment. (2)Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. For foreign currency forward contracts, interest rate swaps and fuel swaps, fair value is derived using valuation models that utilize the income valuation approach. These valuation models take into account the contract terms, such as maturity, as well as other inputs, such as foreign exchange rates and curves, fuel types, fuel curves and interest rate yield curves. Derivative instrument fair values take into account the creditworthiness of the counterparty and the Company. (3)Inputs that are unobservable. (4)Consists of foreign currency forward contracts, interest rate swaps and fuel swaps. (5)Consists of foreign currency forward contracts, interest rate swaps and fuel swaps. (6)Any obligation under the contingent consideration related to the 2018 Silversea Cruises acquisition was eliminated during the quarter ended September 30 2020 as a result of our purchase of the remaining 33.3% non-controlling interest in Silversea Cruises. In prior periods, the contingent consideration was estimated by applying a Monte-Carlo simulation method using our closing stock price along with significant inputs not observable in the market, including the probability of achieving the milestones and estimated future operating results. The Monte-Carlo simulation is a generally accepted statistical technique used to generate a defined number of valuation paths in order to develop a reasonable estimate of fair value. The reported fair values are based on a variety of factors and assumptions. Accordingly, the fair values may not represent actual values of the financial instruments that could have been realized as of September 30, 2020 or December 31, 2019, or that will be realized in the future, and do not include expenses that could be incurred in an actual sale or settlement. Nonfinancial Instruments Recorded at Fair Value on a Nonrecurring Basis The following table presents information about the Company’s nonfinancial instruments recorded at fair value on a nonrecurring basis (in thousands):
| Fair Value Measurements at September 30, 2020 Using |
Description | Total Carrying Amount | Total Fair Value | Level 3 | Total Impairment for the Quarter ended September 30, 2020 | Total Impairment for the Nine Months ended September 30, 2020
Silversea Cruises Goodwill (1) | $ | 508,578 |  | $ | 508,578 |  | $ | 508,578 |  | $ | — |  | 576,208 |
Indefinite-life intangible asset (2) | $ | 318,700 |  | $ | 318,700 |  | $ | 318,700 |  | $ | — |  | 30,800 |
Long-lived assets - property and equipment, net(3) | $ | 577,193 |  | $ | 577,193 |  | $ | 577,193 |  | $ | 83,949 |  | 560,926 |
Long-lived assets - right-of-use assets(4) | $ | 67,265 |  | $ | 67,265 |  | $ | 67,265 |  | $ | — |  | 50,914 |
Equity-method investments(5) | — |  | — |  | — |  | $ | — |  | 39,735 |
Total | $ | 1,471,736 |  | $ | 1,471,736 |  | $ | 1,471,736 |  | $ | 83,949 |  | 1,258,583 |
_________________________________________________________________________________________________________ (1) We estimated the fair value of the Silversea Cruises reporting unit using a probability-weighted discounted cash flow model in combination with a market based valuation approach. The principal assumptions used in the discounted cash flow model are projected operating results, weighted-average cost of capital and terminal value. Significantly impacting these assumptions were changes in market conditions associated with COVID-19 and its impact to the business and related operating plans. The discounted cash flow model used our 2020 projected operating results as a base. To that base we added future years’ cash flows through 2030 assuming multiple revenue and expense scenarios that reflect the impact of different global economic environments for this period on Silversea Cruises' reporting unit. We assigned a probability to each revenue and expense scenario. We discounted the projected cash flows using rates specific to Silversea Cruises' reporting unit based on its weighted-average cost of capital, which was determined to be 12.75%. A significant input in performing the fair value assessment for the Silversea Cruises goodwill was forecasted operating results, which takes into consideration expected ship deliveries, including ship options. The fair value of Silversea Cruises’ goodwill was estimated as of March 31, 2020, the date of the last impairment test. (2) We estimated the fair value of our indefinite-life intangible asset using a discounted cash flow model and the relief-from-roy alty method. For the Silversea Cruises trade name we used a discount ra te of 13.25%, comparable to the rate used in valuing the Silversea Cruises reporting unit. S ignificant inputs in performing the fair value assessment for the trade name were the royalty rate of 3.0% and forecasted net revenues, which takes into consideration expected ship deliveries, including ship options. The fair value of the Silversea Cruises trade name was estimated as of March 31, 2020, the date of the last impairment test. (3) Impairments primarily related to vessels during the six months ended June 30, 2020 and to certain construction in progress projects during the three months ended September 30, 2020. For the vessels impaired as of March 31, 2020, we estimated the fair value of two of our vessels using a blended indication from the income and cost approaches and the fair value of the remaining vessels was estimated primarily based on their orderly liquidation values. For the vessels impaired as of June 30, 2020, we estimated the fair value of the vessels using a modified market approach based on the carrying values and orderly liquidation values of the vessels. A significant input in performing the fair value assessments for these vessels was management's expected use of the vessels, which takes into consideration forecasted operating results. During the quarter ended September 30, 2020, construction in progress assets were impaired due to a reduction in scope or the decision to not complete the projects. The impairment was calculated based on orderly liquidation values. (4) Impairments to our right-of-use assets relate to certain of our berthing arrangements and a ship operating lease. We estimated the fair value of the berthing arrangements using estimated projected discounted cash flows and the fair value of the ship operating lease was estimated using a cost approach. The fair value of the berthing arrangements was estimated as of March 31, 2020, the date these assets were last impaired, and a significant input in performing the fair value assessments for these assets was our expected passenger headcount. The fair value of the ship operating lease was estimated as of June 30, 2020, the date this asset was last impaired, and significant inputs in performing the fair value assessment for this asset were current and residual values of the vessel, expected rate of return and remaining lease payments. (5) We estimated the fair value of our other than temporarily impaired equity-method investments using a discounted cash flow model. A significant input in performing the fair value assessments for these assets was forecaste d operating results for these investments. The fair value of these equity-method investments was estimated as of March 31, 2020, the date these assets were last impaired. We believe that our estimates and judgments related to the fair values of goodwill, intangibles and long-lived assets discussed above are reasonable. A change in the conditions, circumstances or strategy which influence determinations of fair value, may result in the recognition of additional impairment charges. Master Netting Agreements We have master International Swaps and Derivatives Association (“ISDA”) agreements in place with our derivative instrument counterparties. These ISDA agreements generally provide for final close out netting with our counterparties for all positions in the case of default or termination of the ISDA agreement. We have determined that our ISDA agreements provide us with rights of setoff on the fair value of derivative instruments in a gain position and those in a loss position with the same counterparty. We have elected not to offset such derivative instrument fair values in our consolidated balance sheets. See Credit Related Contingent Features for further discussion on contingent collateral requirements for our derivative instruments. The following table presents information about the Company’s offsetting of financial assets under master netting agreements with derivative counterparties (in thousands):
|  | Gross Amounts not Offset in the Consolidated Balance Sheet that are Subject to Master Netting Agreements
|  | As of September 30, 2020 |  | As of December 31, 2019
|  | Gross Amount of Derivative Assets Presented in the Consolidated Balance Sheet |  | Gross Amount of Eligible Offsetting Recognized Derivative Liabilities |  | Cash Collateral Received |  | Net Amount of Derivative Assets |  | Gross Amount of Derivative Assets Presented in the Consolidated Balance Sheet |  | Gross Amount of Eligible Offsetting Recognized Derivative Liabilities |  | Cash Collateral Received |  | Net Amount of Derivative Assets
Derivatives subject to master netting agreements |  | $ | 46,367 |  |  | $ | (42,232) |  |  | $ | — |  |  | $ | 4,135 |  |  | $ | 39,994 |  |  | $ | (39,994) |  |  | $ | — |  |  | $ | — |
Total |  | $ | 46,367 |  |  | $ | (42,232) |  |  | $ | — |  |  | $ | 4,135 |  |  | $ | 39,994 |  |  | $ | (39,994) |  |  | $ | — |  |  | $ | — |
The following table presents information about the Company’s offsetting of financial liabilities under master netting agreements with derivative counterparties (in thousands):
|  | Gross Amounts not Offset in the Consolidated Balance Sheet that are Subject to Master Netting Agreements
|  | As of September 30, 2020 |  | As of December 31, 2019
|  | Gross Amount of Derivative Liabilities Presented in the Consolidated Balance Sheet |  | Gross Amount of Eligible Offsetting Recognized Derivative Assets |  | Cash Collateral Pledged |  | Net Amount of Derivative Liabilities |  | Gross Amount of Derivative Liabilities Presented in the Consolidated Balance Sheet |  | Gross Amount of Eligible Offsetting Recognized Derivative Assets |  | Cash Collateral Pledged |  | Net Amount of Derivative Liabilities
Derivatives subject to master netting agreements |  | $ | (363,955) |  |  | $ | 42,232 |  |  | $ | 30,471 |  |  | $ | (291,252) |  |  | $ | (257,728) |  |  | $ | 39,994 |  |  | $ | — |  |  | $ | (217,734) |
Total |  | $ | (363,955) |  |  | $ | 42,232 |  |  | $ | 30,471 |  |  | $ | (291,252) |  |  | $ | (257,728) |  |  | $ | 39,994 |  |  | $ | — |  |  | $ | (217,734) |
Concentrations of Credit Risk We monitor our credit risk associated with financial and other institutions with which we conduct significant business and, to minimize these risks, we select counterparties with credit risks acceptable to us and we seek to limit our exposure to an individual counterparty. Credit risk, including but not limited to counterparty nonperformance under derivative instruments, our credit facilities and new ship progress payment guarantees, is not considered significant, as we primarily conduct business with large, well-established financial institutions, insurance companies and export credit agencies many of which we have long-term relationships with and which have credit risks acceptable to us or where the credit risk is spread out among a large number of counterparties. As of September 30, 2020, we had counterparty credit risk exposure under our derivative instruments of $2.2 million, which was limited to the cost of replacing the contracts in the event of non-performance by the counterparties to the contracts, the majority of which are currently our lending banks. We do not anticipate nonperformance by any of our significant counterparties. In addition, we have established guidelines we follow regarding credit ratings and instrument maturities to maintain safety and liquidity. We do not normally require collateral or other security to support credit relationships; however, in certain circumstances this option is available to us. Derivative Instruments We are exposed to market risk attributable to changes in interest rates, foreign currency exchange rates and fuel prices. We try to mitigate these risks through a combination of our normal operating and financing activities and through the use of derivative financial instruments pursuant to our hedging practices and policies. The financial impact of these hedging instruments is primarily offset by corresponding changes in the underlying exposures being hedged. We achieve this by closely matching the notional amount, term and conditions of the derivative instrument with the underlying risk being hedged. Although certain of our derivative financial instruments do not qualify or are not accounted for under hedge accounting, our objective is not to hold or issue derivative financial instruments for trading or other speculative purposes. We enter into various forward, swap and option contracts to manage our interest rate exposure and to limit our exposure to fluctuations in foreign currency exchange rates and fuel prices. These instruments are recorded on the balance sheet at their fair value and the vast majority are designated as hedges. We also use non-derivative financial instruments designated as hedges of our net investment in our foreign operations and investments. At inception of the hedge relationship, a derivative instrument that hedges the exposure to changes in the fair value of a firm commitment or a recognized asset or liability is designated as a fair value hedge. A derivative instrument that hedges a forecasted transaction or the variability of cash flows related to a recognized asset or liability is designated as a cash flow hedge. Changes in the fair value of derivatives that are designated as fair value hedges are offset against changes in the fair value of the underlying hedged assets, liabilities or firm commitments. Gains and losses on derivatives that are designated as cash flow hedges are recorded as a component of Accumulated other comprehensive loss until the underlying hedged transactions are recognized in earnings. The foreign currency transaction gain or loss of our non-derivative financial instruments and the changes in the fair value of derivatives designated as hedges of our net investment in foreign operations and investments are recognized as a component of Accumulated other comprehensive loss along with the associated foreign currency translation adjustment of the foreign operation or investment, with the amortization of excluded components affecting earnings. On an ongoing basis, we assess whether derivatives used in hedging transactions are "highly effective" in offsetting changes in the fair value or cash flow of hedged items. For our net investment hedges, we use the dollar offset method to measure effectiveness. For all other hedging programs, we use the long-haul method to assess hedge effectiveness using regression analysis for each hedge relationship. The methodology for assessing hedge effectiveness is applied on a consistent basis for each one of our hedging programs (i.e., interest rate, foreign currency ship construction, foreign currency net investment and fuel). For our regression analyses, we use an observation period of up to three years, utilizing market data relevant to the hedge horizon of each hedge relationship. High effectiveness is achieved when a statistically valid relationship reflects a high degree of offset and correlation between the changes in the fair values of the derivative instrument and the hedged item. If it is determined that a derivative is not highly effective as a hedge or hedge accounting is discontinued, any change in fair value of the derivative since the last date at which it was determined to be effective is recognized in earnings. Cash flows from derivative instruments that are designated as fair value or cash flow hedges are classified in the same category as the cash flows from the underlying hedged items. In the event that hedge accounting is discontinued, cash flows subsequent to the date of discontinuance are classified within investing activities. Cash flows from derivative instruments not designated as hedging instruments are classified as investing activities. We consider the classification of the underlying hedged item’s cash flows in determining the classification for the designated derivative instrument’s cash flows. We classify derivative instrument cash flows from hedges of benchmark interest rate or hedges of fuel expense as operating activities due to the nature of the hedged item. Likewise, we classify derivative instrument cash flows from hedges of foreign currency risk on our newbuild ship payments as investing activities. Interest Rate Risk Our exposure to market risk for changes in interest rates primarily relates to our debt obligations including future interest payments. At September 30, 2020 and December 31, 2019, approximately 65.9% and 62.1%, respectively, of our debt was effectively fixed. We use interest rate swap agreements to modify our exposure to interest rate movements and to manage our interest expense. Market risk associated with our fixed rate debt is the potential increase in fair value resulting from a decrease in interest rates. We use interest rate swap agreements that effectively convert a portion of our fixed-rate debt to a floating-rate basis to manage this risk. At September 30, 2020 and December 31, 2019, we maintained interest rate swap agreements on the following fixed-rate debt instruments:
Debt Instrument | Swap Notional as of September 30, 2020 (In thousands) | Maturity | Debt Fixed Rate | Swap Floating Rate: LIBOR plus | All-in Swap Floating Rate as of September 30, 2020
Oasis of the Seas term loan | $ | 52,500 |  | October 2021 | 5.41% | 3.87% | 4.84%
Unsecured senior notes | 650,000 |  | November 2022 | 5.25% | 3.63% | 3.91%
| $ | 702,500 |  |  |  |  |
These interest rate swap agreements are accounted for as fair value hedges. Market risk associated with our long-term floating rate debt is the potential increase in interest expense from an increase in interest rates. We use interest rate swap agreements that effectively convert a portion of our floating-rate debt to a fixed-rate basis to manage this risk. At September 30, 2020 and December 31, 2019, we maintained interest rate swap agreements on the following floating-rate debt instruments:
Debt Instrument | Swap Notional as of September 30, 2020 (In thousands) | Maturity | Debt Floating Rate | All-in Swap Fixed Rate
Celebrity Reflection term loan | $ | 245,437 |  | October 2024 | LIBOR plus | 0.40% | 2.85%
Quantum of the Seas term loan | 398,125 |  | October 2026 | LIBOR plus | 1.30% | 3.74%
Anthem of the Seas term loan | 422,917 |  | April 2027 | LIBOR plus | 1.30% | 3.86%
Ovation of the Seas term loan | 553,333 |  | April 2028 | LIBOR plus | 1.00% | 3.16%
Harmony of the Seas term loan (1) | 542,123 |  | May 2028 | EURIBOR plus | 1.15% | 2.26%
Odyssey of the Seas term loan (2) | 460,000 |  | October 2032 | LIBOR plus | 0.95% | 3.20%
Odyssey of the Seas term loan (2) | 191,667 |  | October 2032 | LIBOR plus | 0.95% | 2.83%
| $ | 2,813,602 |  |  |  |  |
(1)Interest rate swap agreements hedging the Euro-denominated term loan for Harmony of the Seas include EURIBOR zero-floor matching the hedged debt EURIBOR zero-floor. Amount presented is based on the exchange rate as of September 30, 2020. (2)Interest rate swap agreements hedging the term loan of Odyssey of the Seas include LIBOR zero-floors matching the debt LIBOR zero-floor. The effective dates of the $460.0 million and $191.7 million interest rate swap agreements are October 2020 and October 2022, respectively. The anticipated unsecured term loan for the financing of Odyssey of the Seas was initially expected to be drawn in October 2020. However, due to the impact of COVID-19 to shipyard operations, there is a delay in the ship delivery. These interest rate swap agreements are accounted for as cash flow hedges. The notional amount of interest rate swap agreements related to outstanding debt and our current unfunded financing arrangements as of September 30, 2020 and December 31, 2019 was $3.5 billion. Foreign Currency Exchange Rate Risk Derivative Instruments Our primary exposure to foreign currency exchange rate risk relates to our ship construction contracts denominated in Euros, our foreign currency denominated debt and our international business operations. We enter into foreign currency forward contracts to manage portions of the exposure to movements in foreign currency exchange rates. As of September 30, 2020, the aggregate cost of our ships on order was $14.1 billion, of which we had deposited $770.7 million as of such date. These amounts exclude any ships on order by our Partner Brands. Refer to Note 10. Commitments and Contingencies, for further information on our ships on order. At September 30, 2020 and December 31, 2019, approximately 64.4% and 65.9%, respectively, of the aggregate cost of the ships under construction was exposed to fluctuations in the Euro exchange rate. Our foreign currency forward contract agreements are accounted for as cash flow or net investment hedges depending on the designation of the related hedge. On a regular basis, we enter into foreign currency forward contracts and, from time to time, we utilize cross-currency swap agreements and collar options to minimize the volatility resulting from the remeasurement of net monetary assets and liabilities denominated in a currency other than our functional currency or the functional currencies of our foreign subsidiaries. During the third quarter of 2020, we maintained an average of approximately $262.1 million of these foreign currency forward contracts. These instruments are not designated as hedging instruments. For the quarters ended September 30, 2020 and 2019, changes in the fair value of the foreign currency forward contracts resulted in a gain of $4.9 million and a loss of $26.0 million, respectively. For the nine months ended September 30, 2020 and 2019, changes in the fair value of the foreign currency contracts resulted in a loss of $35.3 million and $25.2 million, respectively. These amounts were recognized in earnings within Other income (expense) in our consolidated statements of comprehensive income (loss). We consider our investments in our foreign operations to be denominated in relatively stable currencies and to be of a long-term nature. As of September 30, 2020, we maintained foreign currency forward contracts and designated them as hedges of a portion of our net investments primarily in TUI Cruises of €245.0 million, or approximately $287.3 million based on the exchange rate at September 30, 2020. These forward currency contracts mature in October 2021. The notional amount of outstanding foreign exchange contracts, excluding the forward contracts entered into to minimize remeasurement volatility, as of September 30, 2020 and December 31, 2019 was $3.3 billion and $2.9 billion, respectively. Non-Derivative Instruments We also address the exposure of our investments in foreign operations by denominating a portion of our debt in our subsidiaries’ and investments’ functional currencies and designating it as a hedge of these subsidiaries and investments. We had designated debt as a hedge of our net investments primarily in TUI Cruises of €284.0 million, or approximately $333.1 million, as of September 30, 2020. As of December 31, 2019, we had designated debt as a hedge of our net investments in TUI Cruises of €319.0 million, or approximately $358.1 million. Fuel Price Risk Our exposure to market risk for changes in fuel prices relates primarily to the consumption of fuel on our ships. We use fuel swap agreements to mitigate the financial impact of fluctuations in fuel prices. Our fuel swap agreements are generally accounted for as cash flow hedges. In the case that our hedged forecasted fuel consumption is not probable of occurring, hedge accounting will be discontinued and the related accumulated other comprehensive gain or loss will be reclassified to Other income (expense) immediately. For hedged forecasted fuel consumption that remains possible of occurring, hedge accounting will be discontinued and the related accumulated other comprehensive gain or loss will remain in accumulated other comprehensive gain or loss until the underlying hedged transactions are recognized in earnings or the related hedged forecasted fuel consumption is deemed probable of not occurring. The current suspension of our cruise operations due to the COVID-19 pandemic resulted in reductions to our forecasted fuel purchases. As of September 30, 2020, we discontinued cash flow hedge accounting on 0.5 million metric tons of our fuel swap agreements maturing in 2020 and 2021. The discontinuance of cash flow hedge accounting on 0.4 million metric tons of the fuel swap agreements resulted in the reclassification of a net $76.3 million loss from Accumulated other comprehensive loss to Other expense during the nine months ended September 30, 2020; whereas, the discontinuance of cash flow hedge accounting on the remaining swaps resulted in the deferral of an immaterial loss in Accumulated other comprehensive loss as the related forecasted fuel consumption remains possible of occurring. Changes in the fair value of fuel swaps for which cash flow hedge accounting was discontinued are currently recognized in Other expense each reporting period. At September 30, 2020, we have hedged the variability in future cash flows for certain forecasted fuel transactions occurring through 2023. As of September 30, 2020 and December 31, 2019, we had the following outstanding fuel swap agreements:
| Fuel Swap Agreements
| As of September 30, 2020 |  | As of December 31, 2019
Designated as hedges: | (metric tons)
2020 | 60,800 |  |  | 792,900 |
2021 | 518,450 |  |  | 488,900 |
2022 | 404,300 |  |  | 322,900 |
2023 | 82,400 |  |  | 82,400 |
| Fuel Swap Agreements
| As of September 30, 2020 |  | As of December 31, 2019
| (% hedged)
Designated hedges as a % of projected fuel purchases: |  |  |
2020 | 53 | % |  | 52 | %
2021 | 39 | % |  | 30 | %
2022 | 24 | % |  | 19 | %
2023 | 5 | % |  | 5 | %
| Fuel Swap Agreements
| As of September 30, 2020 |  | As of December 31, 2019
Not designated as hedges: | (metric tons)
2020 | 113,700 |  |  | 37,600 |
2021 | 96,450 |  |  | — |
At September 30, 2020, $48.1 million of estimated unrealized loss associated with our cash flow hedges pertaining to fuel swap agreements is expected to be reclassified to earnings from Accumulated other comprehensive loss within the next twelve months. Reclassification is expected to occur as the result of fuel consumption associated with our hedged forecasted fuel purchases. The fair value and line item caption of derivative instruments recorded within our consolidated balance sheets were as follows (in thousands):
|  | Fair Value of Derivative Instruments
|  | Asset Derivatives |  | Liability Derivatives
|  | Balance Sheet Location |  | As of September 30, 2020 |  | As of December 31, 2019 |  | Balance Sheet Location |  | As of September 30, 2020 |  | As of December 31, 2019
|  |  | Fair Value |  | Fair Value |  |  | Fair Value |  | Fair Value
Derivatives designated as hedging instruments under ASC 815-20(1) |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | Other assets |  | $ | 19,465 |  |  | $ | 11 |  |  | Other long-term liabilities |  | $ | 141,822 |  |  | $ | 64,168 |
Foreign currency forward contracts |  | Derivative financial instruments |  | 10,203 |  |  | — |  |  | Derivative financial instruments |  | 43,089 |  |  | 75,260 |
Foreign currency forward contracts |  | Other assets |  | 16,699 |  |  | 9,380 |  |  | Other long-term liabilities |  | 29,187 |  |  | 64,711 |
Fuel swaps |  | Derivative financial instruments |  | — |  |  | 16,922 |  |  | Derivative financial instruments |  | 39,808 |  |  | 16,901 |
Fuel swaps |  | Other assets |  | — |  |  | 8,677 |  |  | Other long-term liabilities |  | 78,026 |  |  | 33,965 |
Total derivatives designated as hedging instruments under 815-20 |  |  |  | 46,367 |  |  | 34,990 |  |  |  |  | 331,932 |  |  | 255,005 |
Derivatives not designated as hedging instruments under ASC 815-20 |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency forward contracts |  | Derivative financial instruments |  | $ | — |  |  | $ | 3,186 |  |  | Derivative financial instruments |  | $ | — |  |  | $ | 2,419 |
Fuel swaps |  | Derivative financial instruments |  | — |  |  | 1,643 |  |  | Derivative financial instruments |  | 30,578 |  |  | 295 |
Fuel swaps |  | Other Assets |  | — |  |  | 175 |  |  | Other long-term liabilities |  | 1,445 |  |  | 9 |
Total derivatives not designated as hedging instruments under 815-20 |  |  |  | — |  |  | 5,004 |  |  |  |  | 32,023 |  |  | 2,723 |
Total derivatives |  |  |  | $ | 46,367 |  |  | $ | 39,994 |  |  |  |  | $ | 363,955 |  |  | $ | 257,728 |
(1)Accounting Standard Codification 815-20 “Derivatives and Hedging.” The location and amount of gain or (loss) recognized in income on fair value and cash flow hedging relationships were as follows (in thousands):
|  |  |  |  | Quarter Ended September 30, 2020 |  |  | Quarter Ended September 30, 2019
|  |  |  |  |  | Fuel Expense |  | Depreciation and Amortization Expenses |  | Interest Income (Expense) |  | Other Income (Expense) |  |  |  | Fuel Expense |  | Depreciation and Amortization Expenses |  | Interest Income (Expense) |  | Other Income (Expense)
Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded |  |  | $53,815 |  | $317,139 |  | $(254,332) |  | $(10,853) |  |  |  | $177,677 |  | $320,295 |  | $(96,413) |  | $(7,668)
The effects of fair value and cash flow hedging: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Gain or (loss) on fair value hedging relationships in Subtopic 815-20 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Interest contracts |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  | Hedged items |  |  | n/a |  | n/a |  | $2,379 |  | $— |  |  |  | n/a |  | n/a |  | $(4,116) |  | $—
|  |  | Derivatives designated as hedging instruments |  |  | n/a |  | n/a |  | $39 |  | $— |  |  |  | n/a |  | n/a |  | $2,920 |  | $—
| Gain or (loss) on cash flow hedging relationships in Subtopic 815-20 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Interest contracts |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  | Amount of gain or (loss) reclassified from accumulated other comprehensive income (loss) into income |  |  | n/a |  | n/a |  | $(6,532) |  | n/a |  |  |  | n/a |  | n/a |  | $(373) |  | n/a
|  | Commodity contracts |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  | Amount of gain or (loss) reclassified from accumulated other comprehensive income (loss) into income |  |  | $(5,598) |  | n/a |  | n/a |  | $536 |  |  |  | $2,435 |  | n/a |  | n/a |  | $(472)
|  | Foreign exchange contracts |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  | Amount of gain or (loss) reclassified from accumulated other comprehensive income (loss) into income |  |  | n/a |  | $(3,782) |  | n/a |  | $(1,511) |  |  |  | n/a |  | $(3,592) |  | n/a |  | $(1,251)
|  |  |  |  | Nine Months Ended September 30, 2020 |  |  | Nine Months Ended September 30, 2019
|  |  |  |  |  | Fuel Expense |  | Depreciation and Amortization Expenses |  | Interest Income (Expense) |  | Other Income (Expense) |  |  |  | Fuel Expense |  | Depreciation and Amortization Expenses |  | Interest Income (Expense) |  | Other Income (Expense)
Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded |  |  | $327,275 |  | $961,226 |  | $(555,392) |  | $(127,537) |  |  |  | $519,772 |  | $924,180 |  | $(292,006) |  | $(34,537)
The effects of fair value and cash flow hedging: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Gain or (loss) on fair value hedging relationships in Subtopic 815-20 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Interest contracts |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  | Hedged items |  |  | n/a |  | n/a |  | $(20,855) |  | — |  |  |  | n/a |  | n/a |  | (25,862) |  | $—
|  |  | Derivatives designated as hedging instruments |  |  | n/a |  | n/a |  | $23,338 |  | — |  |  |  | n/a |  | n/a |  | $19,699 |  | $—
| Gain or (loss) on cash flow hedging relationships in Subtopic 815-20 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Interest contracts |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  | Amount of gain or (loss) reclassified from accumulated other comprehensive loss into income |  |  | n/a |  | n/a |  | $(15,939) |  | n/a |  |  |  | n/a |  | n/a |  | $(1,173) |  | n/a
|  | Commodity contracts |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  | Amount of gain or (loss) reclassified from accumulated other comprehensive loss into income |  |  | $(32,520) |  | n/a |  | n/a |  | $3,029 |  |  |  | $33,815 |  | n/a |  | n/a |  | $(1,916)
|  | Foreign exchange contracts |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  | Amount of gain or (loss) reclassified from accumulated other comprehensive loss into income |  |  | n/a |  | $(10,899) |  | n/a |  | $(5,855) |  |  |  | n/a |  | $(10,471) |  | n/a |  | $(3,866)
The carrying value and line item caption of non-derivative instruments designated as hedging instruments recorded within our consolidated balance sheets were as follows (in thousands):
|  |  |  | Carrying Value
Non-derivative instrument designated as hedging instrument under ASC 815-20 |  | Balance Sheet Location |  | As of September 30, 2020 |  | As of December 31, 2019
Foreign currency debt |  | Current portion of debt |  | $ | 40,153 |  |  | $ | 73,572 |
Foreign currency debt |  | Long-term debt |  | 292,908 |  |  | 284,506 |
|  |  |  | $ | 333,061 |  |  | $ | 358,078 |
The effect of derivative instruments qualifying and designated as hedging instruments and the related hedged items in fair value hedges on the consolidated statements of comprehensive income (loss) was as follows (in thousands):
Derivatives and Related Hedged Items under ASC 815-20 Fair Value Hedging Relationships |  | Location of Gain (Loss) Recognized in Income on Derivative and Hedged Item |  | Amount of Gain (Loss) Recognized in Income on Derivative |  | Amount of Gain (Loss) Recognized in Income on Hedged Item
Quarter Ended September 30, 2020 |  | Quarter Ended September 30, 2019 |  | Nine Months Ended September 30, 2020 |  | Nine Months Ended September 30, 2019 |  | Quarter Ended September 30, 2020 |  | Quarter Ended September 30, 2019 |  | Nine Months Ended September 30, 2020 |  | Nine Months Ended September 30, 2019
Interest rate swaps |  | Interest expense, net of interest capitalized |  | $ | 39 |  |  | $ | 2,920 |  |  | $ | 23,338 |  |  | $ | 19,699 |  |  | $ | 2,379 |  |  | $ | (4,116) |  |  | $ | (20,855) |  |  | $ | (25,862) |
|  |  |  | $ | 39 |  |  | $ | 2,920 |  |  | $ | 23,338 |  |  | $ | 19,699 |  |  | $ | 2,379 |  |  | $ | (4,116) |  |  | $ | (20,855) |  |  | $ | (25,862) |
The fair value and line item caption of derivative instruments recorded within our consolidated balance sheets for the cumulative basis adjustment for fair value hedges were as follows (in thousands):
Line Item in the Statement of Financial Position Where the Hedged Item is Included |  | Carrying Amount of the Hedged Liabilities |  | Cumulative amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liabilities
| As of September 30, 2020 |  | As of December 31, 2019 |  | As of September 30, 2020 |  | As of December 31, 2019
Current portion of debt and Long-term debt |  | $ | 719,553 |  |  | $ | 715,234 |  |  | $ | 19,555 |  |  | $ | (1,301) |
|  | $ | 719,553 |  |  | $ | 715,234 |  |  | $ | 19,555 |  |  | $ | (1,301) |
The effect of derivative instruments qualifying and designated as cash flow hedging instruments on the consolidated financial statements was as follows (in thousands):
Derivatives under ASC 815-20 Cash Flow Hedging Relationships |  | Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Income (Loss) on Derivative |  | Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income |  | Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income
Quarter Ended September 30, 2020 |  | Quarter Ended September 30, 2019 |  | Nine Months Ended September 30, 2020 |  | Nine Months Ended September 30, 2019 |  |  | Quarter Ended September 30, 2020 |  | Quarter Ended September 30, 2019 |  | Nine Months Ended September 30, 2020 |  | Nine Months Ended September 30, 2019
Interest rate swaps |  | $ | (42,488) |  |  | $ | (23,488) |  |  | $ | (90,677) |  |  | $ | (91,949) |  |  | Interest expense, net of interest capitalized |  | $ | (6,532) |  |  | $ | (373) |  |  | $ | (15,939) |  |  | $ | (1,173) |
Foreign currency forward contracts |  | 96,821 |  |  | (131,523) |  |  | 39,161 |  |  | (202,273) |  |  | Depreciation and amortization expenses |  | (3,782) |  |  | (3,592) |  |  | (10,899) |  |  | (10,471) |
Foreign currency forward contracts |  | — |  |  | — |  |  | — |  |  | — |  |  | Other income (expense) |  | (1,511) |  |  | (1,251) |  |  | (5,855) |  |  | (3,866) |
Fuel swaps |  | — |  |  | — |  |  | — |  |  | — |  |  | Other income (expense) |  | 536 |  |  | (472) |  |  | 3,029 |  |  | (1,916) |
Fuel swaps |  | (5,085) |  |  | (113,467) |  |  | (120,807) |  |  | 22,496 |  |  | Fuel |  | (5,598) |  |  | 2,435 |  |  | (32,520) |  |  | 33,815 |
|  | $ | 49,248 |  |  | $ | (268,478) |  |  | $ | (172,323) |  |  | $ | (271,726) |  |  |  |  | $ | (16,887) |  |  | $ | (3,253) |  |  | $ | (62,184) |  |  | $ | 16,389 |
The table below represents amounts excluded from the assessment of effectiveness for our net investment hedging instruments for which the difference between changes in fair value and periodic amortization is recorded in accumulated other comprehensive income (loss) (in thousands):
Gain (Loss) Recognized in Income (Net Investment Excluded Components) |  |  |  | Nine Months Ended September 30, 2020
Net inception fair value at January 1, 2020 |  |  |  | $ | (8,008) |
Amount of gain recognized in income on derivatives for the period ended September 30, 2020 |  |  |  | 4,946 |
Amount of gain (loss) remaining to be amortized in accumulated other comprehensive loss, as of September 30, 2020 |  |  |  | 561 |
Fair value at September 30, 2020 |  |  |  | $ | (2,501) |
The effect of non-derivative instruments qualifying and designated as net investment hedging instruments on the consolidated financial statements was as follows (in thousands):
|  | Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss)
Non-derivative instruments under ASC 815-20 Net Investment Hedging Relationships |  | Quarter Ended September 30, 2020 |  | Quarter Ended September 30, 2019 |  | Nine Months Ended September 30, 2020 |  | Nine Months Ended September 30, 2019
Foreign Currency Debt |  | $ | (16,732) |  |  | $ | 12,811 |  |  | $ | (16,784) |  |  | $ | 15,519 |
|  | $ | (16,732) |  |  | $ | 12,811 |  |  | $ | (16,784) |  |  | $ | 15,519 |
The effect of derivatives not designated as hedging instruments on the consolidated financial statements was as follows (in thousands):
|  |  |  | Amount of Gain (Loss) Recognized in Income on Derivatives
Derivatives Not Designated as Hedging Instruments under ASC 815-20 |  | Location of Gain (Loss) Recognized in Income on Derivatives |  | Quarter Ended September 30, 2020 |  | Quarter Ended September 30, 2019 |  | Nine Months Ended September 30, 2020 |  | Nine Months Ended September 30, 2019
Foreign currency forward contracts |  | Other income (expense) |  | $ | 4,907 |  |  | $ | (26,035) |  |  | $ | (35,265) |  |  | $ | (25,189) |
Fuel swaps |  | Fuel |  | — |  |  | — |  |  | — |  |  | (14) |
Fuel swaps |  | Other income (expense) |  | (13,112) |  |  | 1,095 |  |  | (89,471) |  |  | 974 |
|  |  |  | $ | (8,205) |  |  | $ | (24,940) |  |  | $ | (124,736) |  |  | $ | (24,229) |
Credit Related Contingent Features Our current interest rate derivative instruments require us to post collateral if our Standard & Poor’s and Moody’s credit ratings fall below specified levels. Specifically, under most of our agreements, if on the fifth anniversary of executing a derivative instrument, or on any succeeding fifth-year anniversary, our credit ratings for our senior unsecured debt is rated below BBB- by Standard & Poor’s and Baa3 by Moody’s, then the counterparty will periodically have the right to demand that we post collateral in an amount equal to the difference between (i) the net market value of all derivative transactions with such counterparty that have reached their fifth year anniversary, to the extent negative, and (ii) the applicable minimum call amount. The amount of collateral required to be posted will change as, and to the extent, our net liability position increases or decreases by more than the applicable minimum call amount. If our credit rating for our senior unsecured debt is subsequently equal to or above BBB- by Standard & Poor’s or Baa3 by Moody’s, then any collateral posted at such time will be released to us and we will no longer be required to post collateral unless we meet the collateral trigger requirement, generally, at the next fifth-year anniversary. As of September 30, 2020, our senior unsecured debt credit rating was B+ by Standard & Poor's and B2 by Moody's. As of September 30, 2020, seven of our interest rate derivative hedges had a term of at least five years requiring us to post collateral of $30.5 million to satisfy our obligations under our interest rate derivative agreements, taking into account collateral waivers issued by certain banks. We believe the maximum additional collateral we may need to provide under these agreements in the next twelve months is approximately $60.6 million.

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