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 attributable to funds held in operating and escrow accounts, as well as the previously announced sales price of William Hill International, which are denominated in British Pounds (GBP).
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Interest Rate Risk
As of December 31, 2021, the face value of our long-term debt was $14.3 billion, including variable-rate long-term borrowings of $6.6 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 four interest rate swap agreements are currently in place to fix the interest rate on $1.3 billion of variable rate debt. As a result, net of these interest rate swaps, $5.3 billion of debt remains subject to variable interest rates, as of December 31, 2021, 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.
The table below provides information as of December 31, 2021 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, 2021 and should not be considered a predictor of actual future interest rates.
Expected Maturity Date
(Dollars in millions) 2022 2023 2024 2025 2026 Thereafter Total Fair Value
Liabilities
Long-term debt
Fixed rate $ 2 $ 2 $ 2 $ 4,802 $ 3 $ 2,940 $ 7,751 $ 8,156
Average interest rate 6.5 % 6.4 % 6.5 % 9.2 % 6.7 % 6.6 % 7.6 %
Variable rate $ 68 $ 68 $ 4,712 $ 1,724 $ — $ — $ 6,572 $ 6,557
Average interest rate 3.7 % 4.4 % 7.2 % 5.9 % — % — % 4.9 %
Interest Rate Derivatives
Interest rate swaps
Variable to fixed (a)
$ 1,250 $ — $ — $ — $ — $ — $ 1,250
Average pay rate 2.7 % — % — % — % — % — % 2.7 %
Average receive rate 0.5 % — % — % — % — % — % 0.5 %
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(a) These amounts represent the interest rate swap notional amounts that mature at the end of 2022. See Note 12 for additional information.
As of December 31, 2021, 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 $53 million based on gross amounts outstanding at December 31, 2021.
LIBOR is expected to be discontinued by lending institutions after December 31, 2021 for new debt agreements and after June 30, 2023 no additional LIBOR rates will be available. We have variable rate debt instruments which are subject to LIBOR interest rates plus a margin or base rate. Our CRC Credit Facility contains alternative rates in the event that LIBOR is no longer available. The Baltimore Term Loan has been amended and we intend to 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. Our interest rate swaps mature on December 31, 2022.
Foreign Exchange Rate Risks
T he Company has entered into several foreign exchange forward contracts with third parties to hedge the risk of fluctuations in the foreign exchange rates between USD and GBP and to fix the exchange rate for a portion of the funds used in the William Hill Acquisition, repayment of related debt, and expected proceeds of the sale of the international operations. The Company entered into a foreign exchange forward contract to purchase £724 million at a contracted exchange rate, which was settled on June 11, 2021 and December 31, 2021 . As of December 31, 2021, the Company is contracted to sell a total of £790 million at fixed exchange rates. These contracts are to hedge the risk of fluctuations in the foreign exchange rate related to a portion of the expected proceeds from the sale of William Hill International. The forward term of these contracts ends in March 2022.
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