filings.toolsItem 7A. Quantitative and Qualitative Disclosures About Market Risk
6K characters. Original on sec.gov · Markdown
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our primary exposures to market risks are related to changes in interest rates which may adversely affect our results of operations and financial position. We seek to manage exposure to changes in interest rates where economically prudent to do so by utilizing fixed rate debt.
Our interest rate risk relates primarily to the impact of interest rate movements on the following, after giving effect to (1) the FiberNet Acquisition and (2) the 2017 Refinancings:
| • | the potential refinancing of our $13.2 billion in existing debt, compared to $12.1 billion in the prior year; |
| • | our $2.5 billion of floating rate debt representing approximately 19% of total debt, compared to 33% in the prior year; and |
| • | potential future borrowings of incremental debt. |
Potential Refinancing of Existing Debt
Over the next 12 months we have no debt maturities other than principal payments on amortizing debt. We have no debt maturities that have anticipated repayment dates during 2017. As of December 31, 2016 and December 31, 2015, we had no interest rate swaps hedging any refinancings. See below for a tabular presentation of our scheduled contractual debt maturities as of December 31, 2016, after giving effect to (1) the FiberNet Acquisition and (2) the 2017 Refinancings, and a discussion of anticipated repayment dates.
Floating Rate Debt
We manage our exposure to market interest rates on our existing debt by controlling the mix of fixed and floating rate debt. As of December 31, 2016, after giving effect to (1) the FiberNet Acquisition and (2) the 2017 Refinancings, we had $2.5 billion of floating rate debt, none of which had LIBOR floors. As a result, a hypothetical unfavorable fluctuation in market interest rates on our existing debt of 1/8 of a percent point over a 12-month period would increase our interest expense by approximately $3.1 million. As of December 31, 2015, we had approximately $4.0 billion of floating rate debt, none of which had LIBOR floors.
Potential Future Borrowings of Incremental Debt
We typically do not hedge our exposure to interest rates on potential future borrowings of incremental debt for a substantial period prior to issuance. See "Item 7. MD&A—Liquidity and Capital Resources" regarding our liquidity strategy.
The following table provides information about our market risk related to changes in interest rates. The future principal payments and weighted-average interest rates are presented as of December 31, 2016 after giving effect to (1) the FiberNet Acquisition and (2) the 2017 Refinancings (see note 19 to our consolidated financial statements). These debt maturities reflect contractual maturity dates, and do not consider the impact of the principal payments that will commence following the anticipated repayment dates of certain notes (see footnotes (c) and (d)). See note 8 to our consolidated financial statements for additional information regarding our debt.
| Future Principal Payments and Interest Rates by the Debt Instruments' Contractual Year of Maturity | |||||||||||||||||||||||||||||||
| 2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | Total | Fair Value(a) | ||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||
| Fixed rate debt(c) | $ | 51,749 | $ | 48,408 | $ | 39,444 | $ | 28,054 | $ | 1,575,189 | $ | 9,056,333 | $ | 10,799,177 | $ | 11,205,215 | |||||||||||||||
| Average interest rate(b)(c)(d) | 4.3 | % | 4.6 | % | 4.7 | % | 4.8 | % | 2.9 | % | 6.5 | % | 5.9 | % | |||||||||||||||||
| Variable rate debt(e) | $ | 50,000 | $ | 87,500 | $ | 100,000 | $ | 175,000 | $ | 200,000 | $ | 1,927,000 | $ | 2,539,500 | $ | 2,527,188 | |||||||||||||||
| Average interest rate(e) | 2.4 | % | 3.0 | % | 3.4 | % | 3.6 | % | 3.8 | % | 3.8 | % | 3.7 | % |
| (a) | The fair value of our debt is based on indicative quotes (that is, non-binding quotes) from brokers that require judgment to interpret market information, including implied credit spreads for similar borrowings on recent trades or bid/ask offers. These fair values are not necessarily indicative of the amount, which could be realized in a current market exchange. |
| (b) | The average interest rate represents the weighted-average stated coupon rate (see footnote (c) and (d)). |
| (c) | The impact of principal payments that will commence following the anticipated repayment dates is not considered. The tower revenue notes have principal amounts of $2.3 billion, $300 million and $700 million, with anticipated repayment dates in 2020, 2022 and 2025, respectively. |
| (d) | If the tower revenue notes are not repaid in full by the applicable anticipated repayment dates, the applicable interest rate increases by approximately 5% per annum and monthly principal payments commence using the Excess Cash Flow (as defined in the indenture governing the applicable tower revenue notes) of the issuers of the tower revenue notes. The tower revenue notes are presented based on their contractual maturity dates ranging from 2040 to 2045 and include the impact of an assumed 5% increase in interest rate that would occur following the anticipated repayment dates but exclude the impact of monthly principal payments that would commence using Excess Cash Flow of the issuers of the tower revenue notes. The full year 2016 Excess Cash Flow of the issuers of the tower revenue notes was approximately $563.8 million. We currently expect to refinance these notes on or prior to the respective anticipated repayment dates. |
| (e) | Predominantly consists of our 2016 Term Loan A maturing in 2022. |
Previous: Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations · Next: Item 8. Financial Statements and Supplementary Data