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Derivative Instruments | 3 Months Ended
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Mar. 31, 2025
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. Derivatives Designated as Hedging Instruments - Cash Flow Hedges We enter into foreign currency forward contracts to sell GBP and EUR and buy USD to hedge the foreign currency risk associated with interest payments on intercompany loans denominated in GBP and EUR. Forward points on the forward contracts are included in the assessment of hedge effectiveness. We also execute variable-to-fixed interest rate swaps and use interest rate swaption agreements to add stability to interest expense and to manage our exposure to interest rate movements associated with our term loans or forecasted transactions. When it is probable that the forecasted transaction will not occur by the end of the specific time period or within an additional two-month period thereafter, the net derivative instrument gain or loss and any gains and losses that were reported in AOCI pursuant to the hedge of a forecasted transaction are recognized immediately in earnings through the caption entitled 'Interest' in our consolidated statements of income and comprehensive income. Derivatives 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. Derivatives Designated as Hedging Instruments - Net Investment Hedges To mitigate the foreign currency exchange rate variations associated with our investment in EUR-denominated foreign operations, we may enter into derivative instruments, such as cross-currency swaps that qualify as net investment hedges under the criteria prescribed in accordance with ASC 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 our 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). Further, certain EUR-denominated bonds and borrowings under our revolving credit facility and term loans may be also designated as, and are effective as, net investment hedges. Changes in the value of such borrowings, related to changes in the spot rates, will be recorded in the same manner as foreign currency translation adjustments. As of March 31, 2025, the total principal amount of foreign currency debt obligations designated as net investment hedges was $106.8 million. 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 March 31, 2025 and December 31, 2024 (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 | March 31, 2025 |  | December 31, 2024 |  |  | March 31, 2025 |  | December 31, 2024
Interest rate swaps (4) | 10 |  | $ | 2,180.0 |  |  | $ | 2,180.0 | 3.40% | Jun 2025 - Aug 2027 | $ | 15.0 |  |  | $ | 24.3 |
Interest rate swaptions (5) | 3 |  | 250.0 |  |  | — |  | (6) | Apr 2035 | (0.3) |  |  | — |
Cross-currency swaps - Fair Value | 3 |  | 320.0 |  |  | 320.0 | (7) | Oct 2032 | (47.1) |  |  | (42.2) |
Cross-currency swaps - Net Investment | 3 |  | 280.0 |  |  | 280.0 | (8) | Oct 2032 | (42.0) |  |  | (37.6) |
Foreign currency forwards | 34 |  | 436.8 |  |  | 349.5 | (9) | Apr 2025 - Oct 2026 | (3.9) |  |  | 9.3 |
|  |  | $ | 3,466.8 |  |  | $ | 3,129.5 |  |  |  | $ | (78.3) |  |  | $ | (46.2) |
Derivatives not Designated as Hedging Instruments |  |  |  |  |  |  |  |
Currency exchange swaps | 5 |  | $ | 2,162.6 |  |  | $ | 1,725.3 | (10) | Apr 2025 | $ | (3.8) |  |  | $ | 11.8 |
|  |  | $ | 2,162.6 |  |  | $ | 1,725.3 |  |  |  | $ | (3.8) |  |  | $ | 11.8 |
Total of all Derivatives | $ | 5,629.4 |  |  | $ | 4,854.8 |  |  |  | $ | (82.1) |  |  | $ | (34.4) |
(1)This column represents the number of instruments outstanding as of March 31, 2025. (2)Weighted average strike rate is calculated using the notional value as of March 31, 2025. (3)This column represents maturity dates for instruments outstanding as of March 31, 2025. (4)We have ten variable-to-fixed interest rate swaps on our term loans that are designated as cash flow hedges. (5)In March 2025, we executed three swaption collars to mitigate the risk associated with interest rate volatility for an anticipated issuance of USD-denominated bonds. In April 2025, these hedging instruments were terminated early upon the pricing of the April 2035 Notes, as discussed in note 21, Subsequent Events. (6)Weighted average fixed rate of 3.962% for purchased payer swaptions and 3.662% for sold receiver swaptions. (7)USD fixed rate of 5.625% and EUR weighted average fixed rate of 4.681%. (8)USD fixed rate of 5.625% and EUR weighted average fixed rate of 4.716%. (9)Weighted average forward GBP-USD exchange rate of 1.28. (10) Weighted average exchange rates of 0.84 for EUR-GBP and 1.29 for GBP-USD. 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):
| Three months ended March 31, |  |
Derivatives in Cash Flow Hedging Relationships | 2025 |  | 2024 |  |  |  |  |  |
Interest rate swaps | $ | (7,364) |  |  | $ | 9,916 |  |  |  |  |  |  |
Foreign currency forwards | (13,182) |  |  | (570) |  |  |  |  |  |  |
Interest rate swaptions | (406) |  |  | 1,717 |  |  |  |  |  |  |
Total derivatives in cash flow hedging relationships | $ | (20,952) |  |  | $ | 11,063 |  |  |  |  |  |  |
Derivatives in Fair Value Hedging Relationships |  |  |  |  |  |  |  |  |
Cross-currency swaps - Fair Value | $ | 10,327 |  |  | $ | (2,141) |  |  |  |  |  |  |
Total derivatives in fair value hedging relationships | $ | 10,327 |  |  | $ | (2,141) |  |  |  |  |  |  |
Total unrealized (loss) gain on derivatives, net | $ | (10,625) |  |  | $ | 8,922 |  |  |  |  |  |  |
Derivatives and Non-derivatives in Net Investment Hedging Relationships |  |  |  |  |  |  |  |  |
Cross-currency swaps - Net Investment | $ | (4,826) |  |  | $ | 4,873 |  |  |  |  |  |  |
Foreign currency debt | (4,127) |  |  | — |  |  |  |  |  |  |
Total unrealized (loss) gain recorded in foreign currency translation adjustment | $ | (8,953) |  |  | $ | 4,873 |  |  |  |  |  |  |
The following table summarizes the amount of gain (loss) on derivatives reclassified from AOCI (in thousands):
|  |  | Three months ended March 31, |  |
Derivatives in Cash Flow Hedging Relationships |  | Location of Increase Recognized in Income | 2025 |  | 2024 |  |  |  |  |  |
Interest rate swaps |  | Interest | $ | 3,384 |  |  | $ | 8,932 |  |  |  |  |  |  |
Foreign currency forwards |  | Foreign currency and derivative (loss) gain, net | 1,318 |  |  | 2,111 |  |  |  |  |  |  |
Interest rate swaptions |  | Interest | 104 |  |  | (982) |  |  |  |  |  |  |
Total derivatives in cash flow hedging relationships |  |  | $ | 4,806 |  |  | $ | 10,061 |  |  |  |  |  |  |
Derivatives in Fair Value Hedging Relationships |  |  |  |  |  |  |  |  |  |  |
Cross-currency swaps - Fair Value |  | Foreign currency and derivative (loss) gain, net | $ | 215 |  |  | $ | 461 |  |  |  |  |  |  |
Total derivatives in fair value hedging relationships |  |  | $ | 215 |  |  | $ | 461 |  |  |  |  |  |  |
Derivatives in Net Investment Hedging Relationships |  |  |  |  |  |  |  |  |  |  |
Cross-currency swaps - Net Investment (excluded component) |  | Foreign currency and derivative (loss) gain, net | $ | 652 |  |  | $ | 869 |  |  |  |  |  |  |
Total derivatives in net investment hedging relationships |  |  | $ | 652 |  |  | $ | 869 |  |  |  |  |  |  |
Net increase to net income |  |  | $ | 5,673 |  |  | $ | 11,391 |  |  |  |  |  |  |
We expect to reclassify $7.7 million from AOCI as a decrease to interest expense relating to interest rate swaps and $2.6 million from AOCI as an increase to foreign currency gain relating to foreign currency forwards within the next twelve months. The following table details our foreign currency and derivative (loss) gain, net included in income (in thousands):
| Three months ended March 31, |  |
| 2025 |  | 2024 |  |  |  |  |  |
Realized foreign currency and derivative loss, net: |  |  |  |  |  |  |  |  |
Loss on the settlement of undesignated derivatives | $ | (23,404) |  |  | $ | (15,265) |  |  |  |  |  |  |
Gain on the settlement of designated derivatives reclassified from AOCI | 2,185 |  |  | 3,441 |  |  |  |  |  |  |
Gain (loss) on the settlement of transactions with third parties | 3 |  |  | (6) |  |  |  |  |  |  |
Total realized foreign currency and derivative loss, net | $ | (21,216) |  |  | $ | (11,830) |  |  |  |  |  |  |
Unrealized foreign currency and derivative (loss) gain, net: |  |  |  |  |  |  |  |  |
(Loss) gain on the change in fair value of undesignated derivatives | $ | (3,820) |  |  | $ | 2,138 |  |  |  |  |  |  |
Gain on remeasurement of certain assets and liabilities | 22,491 |  |  | 13,738 |  |  |  |  |  |  |
Total unrealized foreign currency and derivative gain, net | $ | 18,671 |  |  | $ | 15,876 |  |  |  |  |  |  |
Total foreign currency and derivative (loss) gain, net | $ | (2,545) |  |  | $ | 4,046 |  |  |  |  |  |  |

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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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