Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 3. Quantitative and Qualitative Disclosures about Market Risk
In the ordinary course of business, our financial results are exposed to fluctuations in interest rates and foreign currency exchange rates. We manage the risk of fluctuations in interest rates by maintaining an appropriate balance between our fixed and floating-rate debt. In accordance with applicable guidance, we presented a sensitivity analysis showing the potential impact to net earnings (loss) of changes in interest rates and foreign currency exchange rates. For the three months ended March 31, 2026 and March 31, 2025, our analysis utilized a hypothetical 100 basis-point
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increase or decrease to the average interest rate on our variable rate debt instruments to illustrate the potential impact to interest expense of changes in interest rates. Our analysis also utilized a hypothetical 100 basis-point increase or decrease to market interest rates on our performance-based variable-rate financial instruments and fixed rate financial instruments to illustrate the potential impact to fair value of changes in interest rates.
Similarly, for the same period, our analysis used a uniform and hypothetical 10% increase in foreign currency translation rates to depict the potential impact on net earnings (loss) due to changes in foreign exchange rates. These market risk instruments and the potential impacts to the condensed consolidated statements of operations are presented below.
Market risk on performance-based & market-based variable-rate hybrid financial instruments. As of March 31, 2026, we had an aggregate of $1,989.2 million outstanding principal amount of our New Term Loans which bear interest, at our option, at rates equal to either (i) a base rate plus a margin of between 500 and 600 basis points depending on the total leverage ratio of the Company and its subsidiaries on a consolidated basis (the “Total Leverage Ratio”) or (ii) Term SOFR plus a margin of between 600 and 700 basis points depending on the Total Leverage Ratio.
The rate in effect for the outstanding New Term Loans was 10.675% per annum as of March 31, 2026, and 11.322% per annum for the New Term Loans as of March 31, 2025.
Increases in market interest rates would cause interest expense to increase and earnings before income taxes to decrease. The change in interest expense and earnings before income taxes would be dependent upon the weighted average outstanding borrowings during the reporting period following an increase in market interest rates. A 100-basis point change in market interest rates would have increased or decreased interest expense on the New Term Loans by approximately $5.0 million during the three months ended March 31, 2026.
A 100-basis point change in market interest rates would have increased or decreased interest expense on the New Term Loans by $5.0 million during the three months ended March 31, 2025.
Market risk on performance-based variable-rate financial instruments. As of March 31, 2026, we had an aggregate of $877.1 million outstanding principal amount of our New 2029 Notes which bear interest ranging from 11.5% to 15.0% per annum depending on the Total Leverage Ratio. The rate in effect for the outstanding New 2029 Notes was 15.0% per annum at March 31, 2026.
A 100-basis point change in market interest rates would have caused an increase (decrease) in the fair value of our performance-based variable-rate financial instruments of approximately $18.7 million and $(18.1) million, respectively, as of March 31, 2026.
Market risk on fixed-rate financial instruments . Included in corporate borrowings as of March 31, 2026, were principal amounts of $155.8 million of our New Exchangeable Notes, $111.6 million of our Existing Exchangeable Notes, $360.0 million of our Existing 7.5% Notes, $400.0 million of our Odeon Notes due 2027, and $125.5 million of our 6.125% Senior Subordinated Notes due 2027 (“Senior Subordinated Notes due 2027”). A 100-basis point change in market interest rates would have caused an increase or (decrease) in the fair value of our fixed rate financial instruments of approximately $21.1 million and $(20.5) million, respectively, as of March 31, 2026.
Included in corporate borrowings as of March 31, 2025, were principal amounts of $427.6 million of our Existing Exchangeable Notes, $950.0 million of our Existing 7.5% Notes, $131.2 million of our Second Lien Notes, $400.0 million of our Odeon Notes due 2027, $42.8 million of our 5.75% Senior Subordinated Notes due 2025, $41.9 million of our Senior Subordinated Notes due 2026, and $125.5 million of our Senior Subordinated Notes due 2027. A 100-basis point change in market interest rates would have caused an increase or (decrease) in the fair value of our fixed rate financial instruments of approximately $53.3 million and $(51.2) million, respectively, as of March 31, 2025.
Foreign currency exchange rate risk. We are also exposed to market risk arising from changes in foreign currency exchange rates affecting our International markets operations. International markets revenues and operating expenses are transacted in British Pounds, Euros, Swedish Krona and Norwegian Krone. U.S. GAAP requires that our subsidiaries use the currency of the primary economic environment in which they operate as their functional currency. If any international subsidiary operates in a highly inflationary economy, U.S. GAAP requires that the U.S. dollar be used as the functional currency. Currency fluctuations in the countries in which we operate result in us reporting exchange gains (losses) or foreign currency translation adjustments. Based upon the functional currencies in the International markets as of March 31, 2026, holding everything else constant, a hypothetical 10% increase in foreign
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currency translation rates to depict the potential impact to net loss of changes in foreign exchange rates would increase the aggregate net loss of our International markets for the three months ended March 31, 2026, by approximately $3.1 million. Based upon the functional currencies in the International markets as of March 31, 2025, holding everything else constant, a hypothetical 10% increase in foreign currency translation rates to depict the potential impact to net loss of changes in foreign exchange rates would increase the aggregate net loss of our International markets for the three months ended March 31, 2025, by approximately $2.4 million.
Our foreign currency translation rates increased by approximately 10.8% for the three months ended March 31, 2026 compared to the three months ended March 31, 2025.