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Fair Value Disclosure | 6 Months Ended
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Jun. 30, 2023
Fair Value Disclosures [Abstract] |
Fair Value Disclosure | Fair Value The assets and liabilities that GATX records at fair value on a recurring basis consisted entirely of derivatives at June 30, 2023 and December 31, 2022. In addition, we review long-lived assets, such as operating assets and facilities, investments in affiliates, and goodwill, for impairment whenever circumstances indicate that the carrying amount of these assets may not be recoverable or when assets may be classified as held for sale. We determine the fair value of the respective assets using Level 3 inputs, including estimates of discounted future cash flows (including net proceeds from sale), independent appraisals, and market comparables, as applicable. See "Note 6. Asset Impairments and Assets Held for Sale" for further information. Derivative Instruments Fair Value Hedges We use interest rate swaps to manage the fixed-to-floating rate mix of our debt obligations by converting a portion of our fixed rate debt to floating rate debt. For fair value hedges, we recognize changes in fair value of both the derivative and the hedged item as interest expense. We had four instruments outstanding with an aggregate notional amount of $200.0 million as of June 30, 2023 with maturities ranging from 2025 to 2027 and four instruments outstanding with an aggregate notional amount of $200.0 million as of December 31, 2022 with maturities ranging from 2025 to 2027. Cash Flow Hedges We use Treasury rate locks and swap rate locks to hedge our exposure to interest rate risk on anticipated transactions. We also use currency swaps, forwards, and put/call options to hedge our exposure to fluctuations in the exchange rates of foreign currencies for certain loans and operating expenses denominated in non-functional currencies. We had twelve instruments outstanding with an aggregate notional amount of $172.6 million as of June 30, 2023 that mature in 2023 and one instrument outstanding with an aggregate notional amount of $110.1 million as of December 31, 2022 that matures in 2023. Within the next 12 months, we expect to reclassify $1.6 million ($1.2 million after-tax) of net losses on previously terminated derivatives from accumulated other comprehensive loss to interest expense. We reclassify these amounts when interest and operating lease expense on the related hedged transactions affect earnings. Non-Designated Derivatives We do not hold derivative financial instruments for purposes other than hedging, although certain of our derivatives are not designated as accounting hedges. We recognize changes in the fair value of these derivatives in other expense immediately. Certain of our derivative instruments contain credit risk provisions that could require us to make immediate payment on net liability positions in the event that we default on certain outstanding debt obligations. The aggregate fair value of our derivative instruments with credit risk related contingent features that were in a liability position as of June 30, 2023 was $14.9 million. We are not required to post any collateral on our derivative instruments and do not expect the credit risk provisions to be triggered. In the event that a counterparty fails to meet the terms of an interest rate swap agreement or a foreign exchange contract, our exposure is limited to the fair value of the swap, if in our favor. We manage the credit risk of counterparties by transacting with institutions that we consider financially sound and by avoiding concentrations of risk with a single counterparty. We believe that the risk of non-performance by any of our counterparties is remote. The following table shows our derivative assets and liabilities that are measured at fair value (in millions):
|  |  | Significant Observable Inputs (Level 2)
| Balance Sheet Location |  | Fair Value June 30, 2023 |  | Fair Value December 31, 2022
Derivative Assets |  |  |  |  |
Foreign exchange contracts (1) | Other assets |  | $ | 0.1 |  |  | $ | — |
Foreign exchange contracts (2) | Other assets |  | — |  |  | 0.7 |
Total derivative assets |  |  | $ | 0.1 |  |  | $ | 0.7 |
Derivative Liabilities |  |  |  |  |
Interest rate contracts (1) | Other liabilities |  | $ | 11.9 |  |  | $ | 11.6 |
Foreign exchange contracts (1) | Other liabilities |  | 3.0 |  |  | 0.5 |
Foreign exchange contracts (2) | Other liabilities |  | 10.4 |  |  | — |
Total derivative liabilities |  |  | $ | 25.3 |  |  | $ | 12.1 |
_________ (1) Designated as hedges. (2) Not designated as hedges. We value derivatives using a pricing model with inputs (such as yield curves and foreign currency rates) that are observable in the market or that can be derived principally from observable market data. As of June 30, 2023 and December 31, 2022, all derivatives were classified as Level 2 in the fair value hierarchy. There were no derivatives classified as Level 1 or Level 3. The following table shows the amounts recorded on the balance sheet related to cumulative basis adjustments for fair value hedges (in millions):
|  | Carrying Amount of the Hedged Assets/(Liabilities) |  | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)
Line Item in the Balance Sheet in Which the Hedged Item is Included |  | June 30 2023 |  | December 31 2022 |  | June 30 2023 |  | December 31 2022
Recourse debt |  | $ | (195.2) |  |  | $ | (195.2) |  |  | $ | (11.9) |  |  | $ | (11.6) |
The following tables show the impacts of our derivative instruments on our statements of comprehensive income (loss) (in millions):
|  | Amount of Loss (Gain) Recognized in Other Comprehensive Income (Loss) |
|  | Three Months Ended June 30 |  | Six Months Ended June 30 |  |  |
Derivative Designation |  | 2023 |  | 2022 |  | 2023 |  | 2022 |  |  |
Derivatives in cash flow hedging relationships: |  |  |  |  |  |  |
Foreign exchange contracts |  | $ | 1.0 |  |  | $ | (4.6) |  |  | $ | 2.5 |  |  | $ | (7.9) |  |  |  |
Total |  | $ | 1.0 |  |  | $ | (4.6) |  |  | $ | 2.5 |  |  | $ | (7.9) |  |  |  |
Location of Loss (Gain) Reclassified from Accumulated Other Comprehensive Loss into Earnings |  | Amount of Loss (Gain) Reclassified from Accumulated Other Comprehensive Loss into Earnings |
| Three Months Ended June 30 |  | Six Months Ended June 30 |  |  |
| 2023 |  | 2022 |  | 2023 |  | 2022 |  |  |
Interest expense |  | $ | 0.4 |  |  | $ | 0.4 |  |  | $ | 0.8 |  |  | $ | 0.8 |  |  |  |
Other expense |  | 0.8 |  |  | (5.2) |  |  | 2.4 |  |  | (8.1) |  |  |  |
Total |  | $ | 1.2 |  |  | $ | (4.8) |  |  | $ | 3.2 |  |  | $ | (7.3) |  |  |  |
The following tables show the impact of our fair value and cash flow hedge accounting relationships, as well as the impact of our non-designated derivatives, on the statements of comprehensive income (loss) (in millions):
| Amount of Gain (Loss) Recognized in Interest Expense on Fair Value and Cash Flow Hedging Relationships
| Three Months Ended June 30 |  | Six Months Ended June 30
| 2023 |  | 2022 |  | 2023 |  | 2022
Total interest expense | $ | (63.7) |  |  | $ | (51.9) |  |  | $ | (122.7) |  |  | $ | (103.1) |
Gain (loss) on fair value hedging relationships |  |  |  |  |  |  |
Interest rate contracts: |  |  |  |  |  |  |
Hedged items | 2.6 |  |  | 1.5 |  |  | 0.3 |  |  | 7.2 |
Derivatives designated as hedging instruments | (2.6) |  |  | (1.5) |  |  | (0.3) |  |  | (7.2) |
Gain (loss) on cash flow hedging relationships |  |  |  |  |  |  |
Interest rate contracts: |  |  |  |  |  |  |
Amount of loss reclassified from accumulated other comprehensive loss into earnings | (0.4) |  |  | (0.4) |  |  | (0.8) |  |  | (0.8) |
| Amount of Gain (Loss) Recognized in Other Expense on Cash Flow Hedging Relationships and Non-Designated Derivative Contracts
| Three Months Ended June 30 |  | Six Months Ended June 30
| 2023 |  | 2022 |  | 2023 |  | 2022
Total other expense | $ | (4.9) |  |  | $ | (11.3) |  |  | $ | (8.9) |  |  | $ | (13.3) |
Gain (loss) on cash flow hedging relationships |  |  |  |  |  |  |
Foreign exchange contracts: |  |  |  |  |  |  |
Amount of (loss) gain reclassified from accumulated other comprehensive loss into earnings (1) | (0.8) |  |  | 5.2 |  |  | (2.4) |  |  | 8.1 |
(Loss) gain on non-designated derivative contracts | (7.5) |  |  | 3.2 |  |  | (11.2) |  |  | 4.7 |
_________ (1) These amounts are substantially offset by foreign currency remeasurement adjustments on related hedged instruments, also recognized in other expense. Other Financial Instruments Except for derivatives, as disclosed above, GATX has no other assets and liabilities measured at fair value on a recurring basis. The carrying amounts of cash and cash equivalents, restricted cash, rent and other receivables, accounts payable, and commercial paper and borrowings under bank credit facilities with maturities under one year approximate fair value due to the short maturity of those instruments. There were no short-term investments at June 30, 2023. As of December 31, 2022, short-term investments of $148.5 million consisted of U.S. Treasury securities, which were classified as held-to-maturity and valued at amortized cost. We estimate the fair values of fixed and floating rate debt using discounted cash flow analyses that are based on interest rates currently offered for loans with similar terms to borrowers of similar credit quality. The inputs we use to estimate each of these values are classified in Level 2 of the fair value hierarchy because they are directly or indirectly observable inputs. The following table shows the carrying amounts and fair values of our other financial instruments (in millions):
| June 30, 2023 |  | December 31, 2022
| Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
Liabilities |  |  |  |  |  |  |
Recourse fixed rate debt | $ | 6,248.3 |  |  | $ | 5,564.2 |  |  | $ | 6,045.1 |  |  | $ | 5,309.8 |
Recourse floating rate debt | 570.0 |  |  | 567.9 |  |  | 417.8 |  |  | 417.0 |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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