Derivative Financial Instruments

The Company and its Affiliates may use derivative financial instruments to offset exposure to changes in interest rates, foreign currency exchange rates and markets.

In 2018, the Company entered into two separate pound sterling-denominated forward foreign currency contracts (the “forward contracts”) with a large financial institution (the “counterparty”). Concurrent to entering into each of the forward contracts, the Company also entered into two separate collar contracts (the “collar contracts”) with the same counterparty for the same notional amounts and expiration dates as each of the forward contracts. Under one of the forward contracts, the Company will deliver £285.8 million for $400.0 million in 2024 and under the other forward contract, the Company will deliver £325.3 million for $450.0 million in 2021. Under one of the collar contracts, the Company sold a put option with a lower strike price of 1.288 U.S. dollars per one pound sterling and purchased a call option with an upper strike price of 1.535 U.S. dollars per one pound sterling. Under the other collar contract, the Company sold a put option with a lower strike price of 1.318 U.S. dollars per one pound sterling and purchased a call option with an upper strike price of 1.448 U.S. dollars per one pound sterling. The forward contracts and the collar contracts provide net settlement rights and require the parties to post collateral throughout the term of the contracts.

The combination of the forward contracts and the collar contracts were designated as net investment hedges against fluctuations in foreign currency exchange rates on certain of the Company’s investments in Affiliates with the pound sterling as their functional currency.

The forward contracts’ excluded component is recognized in earnings on a straight-line basis over the respective periods of the forward contracts as a reduction to Interest expense. All other changes in the fair values of the effective net investment hedges are reported in Foreign currency translation gain (loss) in the Consolidated Statements of Comprehensive Income. The Company assesses hedge effectiveness on a quarterly basis.

The Company’s Affiliates use forward foreign currency contracts to hedge the risk of foreign currency exchange rate movements, none of which were significant.

Derivative financial instruments are presented in Other assets when in an unrealized gain position and in Other liabilities when in an unrealized loss position. When a right to offset exists between derivative financial instruments they are presented net in the Consolidated Balance Sheets. The following table summarizes the Company’s and its Affiliates’ derivative financial instruments measured at fair value on a recurring basis. As of December 31, 2017, the Company and its Affiliates did not have any significant derivative financial instruments.



	December 31, 2018
	Assets		Liabilities
Forward contracts	$	32.0	$	(1.4	)
Put options	—		(60.3		)
Call options	34.1		—
Total	$	66.1	$	(61.7	)

The following table summarizes the effect of the derivative financial instruments on the Consolidated Statements of Comprehensive Income and the Consolidated Statements of Income:



	For the Year Ended December 31, 2018
	Gain (Loss) Recognized in Other Comprehensive Income			Gain (Loss) Recognized in Earnings from Excluded Components⁽¹⁾
Forward contracts	$	27.2		$	3.8
Put options	(17.8		)	—
Call options	(8.4		)	—
Total	$	1.0		$	3.8

⁽¹⁾ The excluded components are recorded as a reduction in Interest expense.

As of December 31, 2018, the Company and its Affiliates did not have any significant gains (losses) reclassified from accumulated other comprehensive income (loss) into earnings.

The terms of the Company’s forward contracts and collar contracts require the Company and the counterparty to post cash collateral in certain circumstances throughout the duration of the contracts. As of December 31, 2018, the Company held $3.1 million of cash collateral from the counterparty, and the counterparty held $28.0 million of cash collateral from the Company.

The counterparty to the Company’s derivative contracts is a large financial institution. The derivative contracts are governed by an International Swaps and Derivative Association (“ISDA”) Master Agreement with the counterparty, which provides for settlement netting and close-out netting between the Company and the counterparty, which are legally enforceable rights to setoff. The Company also actively monitors its counterparty credit risk related to derivative financial instruments. The Company’s derivative contracts include provisions to protect against counterparty rating downgrades, which in certain cases may result in the counterparty posting additional collateral to the Company, or give rise to a termination right. The Company considers set-off rights and counterparty credit risk in the valuation of its positions, and recognizes a credit valuation adjustment as appropriate. The Company’s forward contracts and collar contracts include contingent features that could require the Company or the counterparty to post additional collateral, or give rise to termination rights, if certain specified rating downgrades were to occur. As of December 31, 2018, there were no derivative arrangements with a contingent feature that were in a net liability position.