Item 3. Quantitative and Qualitative Disclosures About Market Risk
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk
As of September 30, 2023, our outstanding variable interest rate debt was primarily related to our 2019 Term Loan and our 2021 Term Loan. As of September 30, 2023, we had $1,027 million outstanding on the 2019 Term Loan and $985 million outstanding on the 2021 Term Loan. On October 11, 2023, we made a repayment of $100 million on the 2019 Term Loan concurrent with the close of the repricing transaction. Following the repricing transaction, we have $505 million outstanding on 2019 Term Loan and $1,407 million outstanding on the 2021 Term Loan. To mitigate increases in variable interest rates, we have a $720 million four-year interest rate swap, exchanging one-month SOFR for a rate of 3.59% per annum and a $400 million five-year interest rate swap exchanging one-month SOFR for a rate of 3.41% per annum. In
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addition, interest expense will be offset by the amortization through October 2024 of the remaining gain of $18 million recognized from the termination of the previously outstanding $720 million notional amount interest rate swap. After the repricing transaction, the remaining floating rate portfolio will bear interest based on one-month SOFR plus CSA plus 225 basis points or one-month SOFR plus CSA plus 250 basis points. As of September 30, 2023, excluding letters of credit outstanding of $16 million, we had no amounts of outstanding revolving loans under our Credit Agreement.
Foreign currency risk
We have operations in over 20 countries globally. Revenues generated from foreign operations represented approximately 35% and 37% of our consolidated net revenues for the three and nine months ended September 30, 2023. Net revenues and expenses related to our foreign operations are, for the most part, denominated in the functional currency of the foreign operation, which minimizes the impact fluctuations in exchange rates would have on net income or loss. We are subject to fluctuations in foreign currency exchange rates when transactions are denominated in currencies other than the functional currencies. Such transactions were not material to our operations during the nine months ended September 30, 2023. These foreign currency transaction gains and losses, including hedging impacts, are classified in investment income and other, net, in the condensed consolidated statements of operations and were a gain (loss) of $0 million for both the three months ended September 30, 2023 and 2022, and $0 million and $(2) million for the nine months ended September 30, 2023 and 2022, respectively. These net foreign currency transaction gains and losses include derivative instruments designed to reduce foreign currency exchange rate risks. Translation gains or losses, which are recorded in accumulated other comprehensive loss in the condensed consolidated balance sheets, result from translation of the assets and liabilities of our foreign subsidiaries into U.S. dollars. Foreign currency translation gains (losses) totaled approximately $(63) million and $(86) million for the three months ended September 30, 2023 and 2022, respectively, and $(22) million and $(311) million for the nine months ended September 30, 2023 and 2022, respectively.
Our exposure to fluctuations in foreign currency exchange rates may continue to increase in the future if we continue to expand our operations outside of the U.S. We seek to manage foreign currency exposure by minimizing our consolidated net assets and liability positions in currencies other than the functional currency of our foreign subsidiaries. However, we believe that our exposure to transactional gains or losses resulting from fluctuations in foreign currencies is limited because our foreign operations primarily invoice and collect receivables in their respective local or functional currencies, and the expenses associated with these transactions are generally contracted and paid for in the same local currencies. In order to manage foreign currency risk related to transactions in foreign currencies and the Chubb business intercompany financing structure, we entered into cross-currency swaps to manage the foreign currency risk of certain intercompany loans. We also occasionally use foreign currency contracts as a way to mitigate foreign currency exposure.
Other market risk
We are also exposed to market risks impacting our customer base due to the potential related impact on accounts receivable or contract assets on uncompleted contracts. The amounts recorded may be at risk if our customers’ ability to pay these obligations is negatively impacted by economic conditions. We continually monitor the creditworthiness of our customers and maintain ongoing discussions with customers regarding contract status with respect to change orders and billing terms. Therefore, management believes it takes appropriate action to manage market and other risks, but there is no assurance management will be able to reasonably identify all risks with respect to the collectability of these assets. See also “Revenue Recognition from Contracts with Customers” under the heading "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
In addition, we are exposed to various supply chain risks, including the market risk of price fluctuations or availability of copper, steel, cable optic fiber, and other materials used as components of supplies or materials utilized in our operations. We are also exposed to increases in energy prices, particularly as they relate to gasoline prices for our vehicle fleet. Disruptions in our supply chain can occur due to market inefficiencies but can also be driven by other events, like cybersecurity breaches, pandemics, or similar disruptive events. While we believe we can increase our contract prices to adjust for some price increases in commodities, there can be no assurance that such price increases, if they were to occur, would be recoverable. Additionally, some of our fixed price contracts do not allow us to adjust prices and, as a result, increases in material costs could reduce profitability with respect to projects in progress.
Significant declines in market prices for oil, gas, and other fuel sources may also impact our operations. Prolonged periods of low oil and gas prices may result in projects being delayed or canceled. In a low oil and gas price environment, certain of our businesses could become less profitable or incur losses.
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