Three Months Ended June 30,
Six Months Ended June 30,
Type of Instrument
Statement of Operations Classification
Derivatives not designated as hedging:
Interest rate swaps
Interest expense (income)
Currency forward contracts
Other expense (income)
Certain derivative contracts contain provisions providing the counterparties a lien on specific assets as collateral. There was no cash collateral received or pledged as of June 30, 2017 or December 31, 2016, respectively, related to the Company’s derivative transactions.
Derivatives Designated as Hedges
Interest Rate Swaps
The Company has entered into interest rate swap agreements to hedge variable rate project level debt. These interest rate swaps qualify for hedge accounting and are designated as cash flow hedges. Under the interest rate swap agreements, the power plant pays a fixed rate and the counterparty to the agreement pays a variable interest rate. No amounts deferred in other comprehensive income were reclassified into earnings during the three and six months ended June 30, 2017 and 2016.
Cross Currency Swaps
The Company has entered into cross currency swap agreements to hedge its exposure to foreign currency fluctuations on debt denominated in U.S. dollars. These cross currency rate swaps qualify for hedge accounting and were designated as cash flow hedges. The amounts deferred in other comprehensive income and reclassified into earnings were $12.9 million income and $14.0 million loss during the three months ended June 30, 2017 and 2016, respectively, and $8.5 million income and $32.2 million loss during the six months ended June 30, 2017 and 2016, respectively. There was no ineffectiveness recorded for the periods presented.
Derivatives Not Designated as Hedges
Interest Rate Swaps
The Company has entered into interest rate swap agreements that economically hedge the cash flows for project level debt. These interest rate swaps pay a fixed rate and the counterparties to the agreements pay a variable interest rate. The changes in fair value are recorded in interest expense, net in the unaudited condensed consolidated statements of operations as these hedges are not accounted for under hedge accounting.
Foreign Currency Contracts
The Company transacts business in various foreign currencies and has established a program that primarily utilizes foreign currency contracts to offset the risks associated with the effects of certain foreign currency exposures. The Company does not use these foreign currency contracts for trading purposes nor does it designate these forward contracts as hedging instruments pursuant to ASC 815. As of June 30, 2017, the notional amounts of the foreign currency contracts the Company held to purchase U.S. dollars in exchange for other major international currencies were $127.6 million. Included in the Company’s non-operating income was $12.9 million and $8.5 million of net income related to these foreign currency contracts for the three and six months ended June 30, 2017, respectively, which was a result of devaluation as compared to the U.S. dollar in the Brazilian real (BRL), Chinese yuan renminbi (CNY), Indian rupee (INR), Malaysian ringgit (MYR), South African rand (ZAR) and Thai baht (THB). The fair value of the Company’s outstanding foreign currency forward contracts was a net liability of $18.1 million as of June 30, 2017. The cash flow related to foreign currency contracts that remain outstanding is classified as operating activities. The cash flow associated with foreign currency contract settlements is classified as investing activities. The net loss relating to investments was partially offset by the lower cost related to the cash flows related to the acquisitions and debt extinguishments that were hedged.