Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. We are exposed to changes in interest rates primarily from variable rate long-term debt arrangements. Our exposure to foreign exchange risk is primarily attributable to funds held in operating and escrow accounts which are denominated in British Pounds (GBP).
Interest Rate Risk
As of December 31, 2020, the face value of our long-term debt was $15.0 billion, including variable-rate long-term borrowings of $6.4 billion. No amounts were outstanding under our revolving credit facilities.
As a result of the Merger, we assumed Former Caesars’ interest rate swaps, of which seven interest rate swap agreements are currently in place to fix the interest rate on $2.3 billion of variable rate debt. As a result, net of these interest rate swaps, $4.1 billion of debt remains subject to variable interest rates, as of December 31, 2020, for the term of the agreements. See Note 12 for additional information. The difference to be paid or received under the terms of the interest rate swap agreements is accrued as interest rates change and recognized as an adjustment to interest expense as settlements occur. Changes in the variable interest rates to be received pursuant to the terms of the interest rate swap agreements will have a corresponding effect on future cash flows.
We do not purchase or hold any derivative financial instruments for trading purposes.
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The table below provides information as of December 31, 2020 about our financial instruments that are sensitive to changes in interest rates including the cash flows associated with amortization, the notional amounts of interest rate derivative instruments, and related weighted average interest rates. Principal amounts are used to calculate the payments to be exchanged under the related agreements and weighted average variable rates are based on implied forward rates in the yield curve as of December 31, 2020 and should not be considered a predictor of actual future interest rates.
Expected Maturity Date
(Dollars in millions) 2021 2022 2023 2024 2025 Thereafter Total Fair Value
Liabilities
Long-term debt
Fixed rate $ 2 $ 2 $ 2 $ 317 $ 6,502 $ 1,843 $ 8,668 $ 9,179
Average interest rate 6.4 % 6.4 % 6.4 % 6.5 % 8.4 % 8.1 % 7.1 %
Variable rate $ 65 $ 65 $ 65 $ 4,436 $ 1,724 $ — $ 6,355 $ 6,287
Average interest rate 3.6 % 3.6 % 3.8 % 6.4 % 6.6 % — % 4.1 %
Interest Rate Derivatives
Interest rate swaps
Variable to fixed (a)
$ 1,050 $ 1,250 $ — $ — $ — $ — $ 2,300
Average pay rate 2.7 % 2.7 % — % — % — % — % 2.7 %
Average receive rate 1.3 % 1.8 % — % — % — % — % 1.5 %
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(a) These amounts represent the interest rate swap notional amounts that mature at the end of each respective year. See Note 12 for additional information.
As of December 31, 2020, borrowings outstanding under our credit facilities were variable-rate borrowings. Assuming a 100 basis-point increase in LIBOR, our annual interest cost would change by $41 million based on gross amounts outstanding at December 31, 2020.
LIBOR is expected to be discontinued after 2021. The interest rate per annum applicable to loans under our credit facilities are, at our option, either LIBOR plus a margin or a base rate plus a margin. The credit facilities permit the administrative agent to select, in its reasonable discretion, an alternative base rate in the event that LIBOR is discontinued, but there can be no assurances as to what alternative base rates may be and whether such base rate will be more or less favorable than LIBOR and any other unforeseen impacts of the potential discontinuation of LIBOR. We intend to continue monitoring the developments with respect to the potential phasing out of LIBOR after 2021 and work with our lenders to ensure any transition away from LIBOR will have minimal impact on our financial condition, but can provide no assurances regarding the impact of the discontinuation of LIBOR.
Foreign Exchange Rate Risks
The Company entered into a foreign exchange forward contract to hedge the risk of appreciation of the GBP denominated purchase price related to William Hill. On October 9, 2020, the Company entered into a foreign exchange forward contract to purchase £536 million at a contracted exchange rate. As of December 31, 2020, the forward contract was valued at $40 million and was recorded in Other long-term assets. A corresponding unrealized gain of $40 million related to the change in fair value was recorded in the Other (loss) income in the Statement of Operations .
As of December 31, 2020 , we held approximately $2.5 billion of cash, cash equivalents and restricted cash denominated in GBP. Although these funds are subject to changes in foreign exchange rates, such risk is expected to be mitigated as we anticipate using these funds for the purchase price of William Hill, which is also denominated in GBP.