Derivative Financial Instruments

6 Months Ended

Jun. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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 the forward contracts. Under one of the forward contracts, the Company will deliver £325.3 million for $450.0 million in 2021 and, under the other forward contract, the Company will deliver £285.8 million for $400.0 million in 2024. Under the collar contract expiring in 2021, 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. Under the collar contract expiring in 2024, 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.

The combination of the forward contracts and the collar contracts was 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.

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.

Certain of the Company’s Affiliates use forward foreign currency contracts to hedge the risk of foreign exchange rate movements, which were not significant for the three and six months ended June 30, 2018 and 2019.

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:



	December 31, 2018					June 30, 2019
	Assets		Liabilities			Assets		Liabilities
Forward contracts	$	32.0	$	(1.4	)	$	47.6	$	(0.3	)
Put options	—		(60.3		)	—			(54.6	)
Call options	34.1		—			19.0			—
Total	$	66.1	$	(61.7	)	$	66.6	$	(54.9	)

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 three and six months ended June 30, 2018, the Company and its Affiliates did not have any significant derivative financial instruments.



	For the Three Months Ended June 30, 2019							For the Six Months Ended June 30, 2019
	Gain (Loss) Recognized in Other Comprehensive Income			Gain Reclassified from Accumulated Other Comprehensive Loss into Earnings		Gain Recognized in Earnings from Excluded Components⁽¹⁾		Gain (Loss) Recognized in Other Comprehensive Income			Gain Reclassified from Accumulated Other Comprehensive Loss into Earnings		Gain Recognized in Earnings from Excluded Components⁽¹⁾
Forward contracts	$	26.6		$	0.3	$	3.5	$	9.8		$	0.2	$	7.0
Put options	(12.3		)	—		—		5.6			—		—
Call options	(7.6		)	—		—		(15.1		)	—		—
Total	$	6.7		$	0.3	$	3.5	$	0.3		$	0.2	$	7.0

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⁽¹⁾	The excluded components of the forward contracts are recognized in earnings on a straight-line basis over the respective period of the contracts as a reduction to Interest expense on the Consolidated Statements of Income.

The terms of the Company’s forward contracts and collar contracts provide net settlement rights and require the Company and the counterparty to post cash collateral in certain circumstances throughout the duration of the contracts. As of June 30, 2019, the Company held $8.8 million of cash collateral from the counterpary and the counterparty held $37.3 million of cash collateral from the Company.

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 give the Company 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 give rise to termination rights, if certain specified rating downgrades were to occur. As of June 30, 2019, there were no derivative arrangements with a contingent feature that were in a net liability position.