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Derivative Instruments | 12 Months Ended
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Dec. 31, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments | Derivative Instruments In the normal course of business, our operations are exposed to economic risks from interest rates and foreign currency exchange rates. We may enter into derivative financial instruments to offset these underlying economic risks. Derivative Designated as Hedging Instruments - Cash Flow Hedges We entered into foreign currency forward contracts to sell GBP, USD, and EUR and buy EUR, USD, and GBP to hedge the foreign currency risk associated with interest payments on intercompany loans denominated in British Pound Sterling ("GBP") and Euro ("EUR"). Forward points on the forward contracts are included in the assessment of hedge effectiveness. We executed variable-to-fixed interest rate swaps to add stability to interest expense and to manage our exposure to interest rate movements associated with our term loans. To mitigate the impact of fluctuating interest rates, we also entered into interest rate swaption agreements during March 2023, structuring them as swaption corridors, in anticipation of issuing USD denominated bonds. Interest rate swaption corridors are a combination of two swaption positions. Specifically, we purchased a payer swaption, an option that allows us to enter into a swap where we will pay the fixed rate and receive the floating rate of the swap, and we also sold a payer swaption, an option that provides the counterparty with the right to enter into a swap where we will receive the fixed rate and pay the floating rate of the swap. The total premium paid for the March 2023 transaction was $7.6 million. All three hedging instruments are designated as cash flow hedges. Derivative Designated as Hedging Instruments - Fair Value Hedges Periodically, we enter into and designate fixed-to-floating interest rate swaps to manage interest rate risk by managing our mix of fixed-rate and variable-rate debt. These swaps involve the receipt of fixed-rate amounts for variable interest rate payments over the life of the swaps without exchange of the underlying principal amount. We also designate some of our cross-currency swaps as fair value hedges as we use them to hedge foreign currency risk associated with changes in spot rates on foreign-denominated debt. For these hedging instruments, we have elected to exclude the change in fair value of the cross-currency swaps related to both time value and cross-currency basis spread from the assessment of hedge effectiveness (the "excluded component"). Changes in the fair value of the cross-currency swaps attributable to these excluded components are recorded to other comprehensive income and subsequently recognized in 'Foreign currency and derivative (loss) gain, net' on a systematic and rational basis, as net cash settlements and interest accruals on the respective cross currency swaps occur, over the remaining life of the hedging instruments. Derivative Designated as Hedging Instruments - Net Investment Hedges During the fourth quarter of 2023, we designated the three existing cross-currency swaps that had not been designated as hedging instruments through the third quarter of 2023 as net investment hedges to mitigate the risks associated with our investment in EUR-denominated foreign operations. These cross-currency swaps qualify as net investment hedges under the criteria prescribed in accordance with ASC Topic 815-20, Hedging - General. We use the spot method of assessing hedge effectiveness and apply the consistent election to the excluded component by recognizing changes in the fair value of the hedging instruments attributable to the excluded component in the same manner as described above. Any difference between the change in the fair value of the excluded components and the amounts recognized in earnings is reported in other comprehensive income as part of the foreign cumulative translation adjustment. The gain or loss on the portion of the derivative instruments included in the assessment of effectiveness is reported in other comprehensive income as part of the 'Foreign currency translation adjustment' line item, to the extent the relationship is highly effective. If the company’s net investment changes during a reporting period, the hedge relationship will be assessed for whether a de-designation is warranted (only if the hedge notional amount is outside of prescribed tolerance). Derivatives Not Designated as Hedging Instruments We enter into foreign currency exchange swap agreements to reduce the effects of currency exchange rate fluctuations between the USD, our reporting currency, and GBP and EUR. These derivative contracts generally mature within one year and are not designated as hedge instruments for accounting purposes. As the currency exchange swap is not accounted for as a hedging instrument, the change in fair value is recorded in earnings through the caption entitled 'Foreign currency and derivative (loss) gain, net' in our consolidated statements of income and comprehensive income. The following table summarizes the terms and fair values of our derivative financial instruments at December 31, 2023 and 2022 (dollars in millions):
Derivative Type | Number of Instruments (1) |  | Notional Amount as of | Weighted Average Strike Rate (2) | Maturity Date (3) | Fair Value - asset (liability) as of
Derivatives Designated as Hedging Instruments | December 31, 2023 |  | December 31, 2022 |  |  | December 31, 2023 |  | December 31, 2022
Interest rate swaps | 9 |  | $ | 1,630.0 |  |  | $ | 250.0 | 4.26% | Jan 2024 - Jan 2026 | $ | 0.3 |  |  | $ | 5.6 |
Interest rate swaptions | 6 |  | 1,000.0 |  |  | — |  | (4) | Feb 2034 | 2.6 |  |  | — |
Cross-currency swaps - Fair Value (5) | 3 |  | 320.0 |  |  | 320.0 | (6) | Oct 2032 | (59.8) |  |  | (33.3) |
Cross-currency swaps - Net Investment (5) | 3 |  | 280.0 |  |  | — | (7) | Oct 2032 | (53.2) |  |  | — |
Foreign currency forwards | 22 |  | 162.3 |  |  | 185.5 | (8) | Jan 2024 - Dec 2024 | 2.7 |  |  | 16.1 |
|  |  | $ | 3,392.3 |  |  | $ | 755.5 |  |  |  | $ | (107.4) |  |  | $ | (11.6) |
Derivatives not Designated as Hedging Instruments |  |  |  |  |  |  |  |
Currency exchange swaps | 4 |  | $ | 1,810.6 |  |  | $ | 2,427.7 | (9) | Jan 2024 - Feb 2024 | $ | 8.9 |  |  | $ | 58.8 |
Cross-currency swaps (5) | 0 |  | — |  |  | 280.0 | —% | Oct 2032 | — |  |  | (29.5) |
|  |  | $ | 1,810.6 |  |  | $ | 2,707.7 |  |  |  | $ | 8.9 |  |  | $ | 29.3 |
Total of all Derivatives | $ | 5,202.9 |  |  | $ | 3,463.2 |  |  |  | $ | (98.5) |  |  | $ | 17.7 |
(1)This column represents the number of instruments outstanding as of December 31, 2023. (2)Weighted average strike rate is calculated using the notional value as of December 31, 2023. (3)This column represents maturity dates for instruments outstanding as of December 31, 2023. (4)Represent purchased payer swaptions with a strike rate of 3.75% and sold payer swaptions with a strike rate of 4.25%. (5)In October 2022, we entered into six cross-currency swaps to exchange €612 million for $600 million maturing in October 2032. We redesignated $280 million of three cross-currency swaps as net investment hedges in December 2023. (6)USD fixed rate of 5.625% and EUR weighted average fixed rate of 4.681%. (7)USD fixed rate of 5.625% and EUR weighted average fixed rate of 4.716%. (8)Weighted average forward GBP-USD exchange rate of 1.30. (9)Weighted average exchange rates of 1.27 for GBP-USD and 0.86 for EUR-GBP. We measure our derivatives at fair value and include the balances within 'Other assets, net' and 'Accounts payable and accrued expenses' on our consolidated balance sheets. We have agreements with each of our derivative counterparties containing provisions under which we could be declared in default on our derivative obligations if repayment of our indebtedness is accelerated by the lender due to our default. The following table summarizes the amount of unrealized gain (loss) on derivatives and foreign currency translation adjustments in other comprehensive income (in thousands):
|  |  | Years ended December 31,
Derivatives in Cash Flow Hedging Relationships |  |  |  |  | 2023 |  | 2022 |  | 2021
Cross-currency swaps |  |  |  |  | $ | — |  |  | $ | (5,091) |  |  | $ | 8,232 |
Interest rate swaps |  |  |  |  | (11,171) |  |  | 98,310 |  |  | 34,659 |
Foreign currency forwards |  |  |  |  | (13,349) |  |  | 8,540 |  |  | 7,557 |
Interest rate swaptions |  |  |  |  | 1,857 |  |  | — |  |  | — |
Total derivatives in cash flow hedging relationships |  |  |  |  | $ | (22,663) |  |  | $ | 101,759 |  |  | $ | 50,448 |
Derivatives in Fair Value Hedging Relationships |  |  |  |  |  |  |  |  |
Cross-currency swaps - Fair Value |  |  |  |  | $ | (14,602) |  |  | $ | (4,705) |  |  | $ | — |
Total derivatives in fair value hedging relationships |  |  |  |  | $ | (14,602) |  |  | $ | (4,705) |  |  | $ | — |
Total unrealized (loss) gain on derivatives, net |  |  |  |  | $ | (37,265) |  |  | $ | 97,054 |  |  | $ | 50,448 |
Derivatives in Net Investment Hedging Relationships |  |  |  |  |  |  |  |  |
Cross-currency swaps - Net Investment |  |  |  |  | $ | (4,272) |  |  | $ | — |  |  | $ | — |
Total unrealized loss recorded in foreign currency translation adjustment |  |  |  |  | $ | (4,272) |  |  | $ | — |  |  | $ | — |
The following table summarizes the amount of gain (loss) on derivatives reclassified from AOCI (in thousands):
|  |  |  |  | Years ended December 31,
Derivatives in Cash Flow Hedging Relationships |  | Location of Gain (Loss) Recognized in Income |  |  |  |  | 2023 |  | 2022 |  | 2021
Cross-currency swaps |  | Foreign currency and derivative (loss) gain, net |  |  |  |  | $ | — |  |  | $ | 30,814 |  |  | $ | 3,541 |
Interest rate swaps |  | Interest expense |  |  |  |  | 15,794 |  |  | (4,487) |  |  | (10,343) |
Foreign currency forwards |  | Foreign currency and derivative (loss) gain, net |  |  |  |  | 4,251 |  |  | 2,139 |  |  | — |
Interest rate swaptions |  | Interest expense |  |  |  |  | (6,859) |  |  | — |  |  | — |
Total derivatives in cash flow hedging relationships |  |  |  |  |  |  | $ | 13,186 |  |  | $ | 28,466 |  |  | $ | (6,802) |
Derivatives in Fair Value Hedging Relationships |  |  |  |  |  |  |  |  |  |  |
Cross-currency swaps - Fair Value |  | Foreign currency and derivative (loss) gain, net |  |  |  |  | $ | 1,415 |  |  | $ | (29,708) |  |  | $ | — |
Total derivatives in fair value hedging relationships |  |  |  |  |  |  | $ | 1,415 |  |  | $ | (29,708) |  |  | $ | — |
Derivatives in Net Investment Hedging Relationships |  |  |  |  |  |  |  |  |  |  |
Cross-currency swaps - Net Investment |  | Foreign currency and derivative (loss) gain, net |  |  |  |  | $ | 62 |  |  | $ | — |  |  | $ | — |
Total derivatives in net investment hedging relationships |  |  |  |  |  |  | $ | 62 |  |  | $ | — |  |  | $ | — |
Net increase (decrease) to net income |  |  |  |  |  |  | $ | 14,663 |  |  | $ | (1,242) |  |  | $ | (6,802) |
We expect to reclassify $8.0 million from AOCI as a decrease to interest expense relating to interest rate swaps and interest rate swaptions and $3.6 million from AOCI to foreign currency gain relating to foreign currency forwards within the next twelve months. The following table details our foreign currency and derivative gains (losses), net included in income (in thousands):
|  |  | Years ended December 31,
|  |  |  |  | 2023 |  | 2022 |  | 2021
Realized foreign currency and derivative gain (loss), net: |  |  |  |  |  |  |  |  |
Gain on the settlement of undesignated derivatives |  |  |  |  | $ | 18,051 |  |  | $ | 204,392 |  |  | $ | 24,392 |
Gain on the settlement of designated derivatives reclassified from AOCI |  |  |  |  | 5,728 |  |  | 3,245 |  |  | 3,541 |
Gain (loss) on the settlement of transactions with third parties |  |  |  |  | 583 |  |  | (553) |  |  | (134) |
Total realized foreign currency and derivative gain, net |  |  |  |  | $ | 24,362 |  |  | $ | 207,084 |  |  | $ | 27,799 |
Unrealized foreign currency and derivative gain (loss), net: |  |  |  |  |  |  |  |  |
(Loss) gain on the change in fair value of undesignated derivatives |  |  |  |  | $ | (5,231) |  |  | $ | 29,316 |  |  | $ | (14,714) |
Loss on remeasurement of certain assets and liabilities |  |  |  |  | (32,545) |  |  | (249,711) |  |  | (12,375) |
Total unrealized foreign currency and derivative loss, net |  |  |  |  | $ | (37,776) |  |  | $ | (220,395) |  |  | $ | (27,089) |
Total foreign currency and derivative (loss) gain, net |  |  |  |  | $ | (13,414) |  |  | $ | (13,311) |  |  | $ | 710 |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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