Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our operations expose us to a variety of market risks, including the effects of changes in interest rates as we have both fixed-rate and variable-rate debt. We monitor and manage these financial exposures as an integral part of our overall risk management program. Our policies allow for the use of specified financial instruments for hedging purposes only. The use of derivatives for speculation purposes is prohibited.
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Interest Rate Risk
We manage interest rate exposure on our variable-rate debt through interest rate swap contracts. As of December 31, 2025, the principal balance of our debt, excluding finance leases, that was subject to a variable-rate was approximately 2% (including the impact of interest rate swaps) and approximately 51% (excluding the impact of interest rate swaps) of the total carrying amount of our debt.
If current SOFR increases or decreases, the increase or decrease in our debt service obligations on the majority of our variable rate indebtedness will be materially neutralized as our interest rate swaps hedge any increase or decrease in current SOFR.
The impact of a hypothetical 10% change in interest rates on the fair value of our long-term debt (excluding finance leases) and interest rate swap contracts would be:
As of December 31,
2025 2024
Long-term debt (excluding finance leases):
Carrying amount $ 7.6 billion $ 7.6 billion
Fair value (1)
$ 7.7 billion $ 7.6 billion
Fair value impact of hypothetical 10% change in interest rates $ 171 million $ 156 million
Interest rate swap contracts:
Notional value $ 6.9 billion $ 3.8 billion
Fair value - net asset / (liability) (2)
$ 38 million $ 109 million
Fair value impact of hypothetical 10% change in interest rates $ 44 million $ 18 million
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(1) The fair value of long-term debt is based on the implied yield from broker-quoted market prices. The carrying amounts of debt outstanding, if any, under the Company’s revolving credit facility and receivables facility approximate fair values as interest rates on these borrowings approximate current market rates.
(2) The fair value of interest rate swap contracts is based on discounted cash flow analyses.
Refer to Note 7 “Debt” and Note 8 “Derivative Financial Instruments” in the Notes to Consolidated Financial Statements for details on our debt and interest rate swaps, respectively.
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