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.
Interest Rate Risk
As of December 31, 2022, the face value of our long-term debt was $13.1 billion, including variable-rate long-term borrowings of $5.4 billion. No amounts were outstanding under our revolving credit facilities.
As a result of the Merger, we assumed interest rate swaps to manage the mix of debt between fixed and variable rate instruments. During the year ended December 31, 2022, we had four interest rate swap agreements to fix the interest rate on $1.3 billion of variable rate debt related to the CRC Credit Agreement. The interest rate swaps were designated as cash flow hedging instruments. The difference to be paid or received under the terms of the interest rate swap agreements was accrued as interest rates changed and recognized as an adjustment to interest expense at settlement. The term of the interest rate swaps ended on December 31, 2022.
We do not purchase or hold any derivative financial instruments for trading purposes.
The table below provides information as of December 31, 2022 about our fixed rate and variable rate financial instruments that are sensitive to changes in interest rates, including the cash flows associated with amortization and average interest rates. Principal amounts are used to calculate the payments to be exchanged under the related agreements and average variable rates are based on implied forward rates in the yield curve as of December 31, 2022 and should not be considered a predictor of actual future interest rates.
Expected Maturity Date
(Dollars in millions) 2023 2024 (a)
2025 (a)
2026 2027 Thereafter Total Fair Value
Liabilities
Long-term debt
Fixed rate $ 2 $ 2 $ 4,792 $ 2 $ 1,613 $ 1,238 $ 7,649 $ 7,298
Average interest rate 4.3 % 4.3 % 6.3 % 4.3 % 8.1 % 4.6 % 6.4 %
Variable rate $ 106 $ 3,688 $ 1,005 $ 38 $ 38 $ 561 $ 5,436 $ 5,377
Average interest rate 7.1 % 7.2 % 7.8 % 6.7 % 6.7 % 6.7 % 7.3 %
____________________
(a) Maturities of $3.4 billion in 2024 and $1.0 billion in 2025 of variable rate debt were repaid with the net proceeds of the $2.5 billion CEI Term Loan B and the $2.0 billion CEI Senior Secured Notes due 2030.
As of December 31, 2022, borrowings outstanding under our credit facilities were variable-rate borrowings. Assuming a 100 basis-point increase in LIBOR and Term SOFR, our annual interest cost would change by $54 million based on gross amounts outstanding at December 31, 2022.
LIBOR was discontinued by lending institutions for new debt agreements and after June 30, 2023 no additional LIBOR rates are expected to be available. We have variable rate debt instruments which are subject to LIBOR and Term SOFR interest rates plus a reasonable margin. Our CRC Term Loan and CRC Incremental Term loan are LIBOR based loans as of December 31, 2022. As previously described, subsequent to December 31, 2022 we repaid both our CRC Term Loan and CRC Incremental Term Loan and our interest rate swaps matured on December 31, 2022.
Foreign Exchange Rate Risks
We 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. During the years ended December 31, 2022 and 2021, we recorded a gain of $73 million and $23 million, respectively , related to forward contracts, which was recorded in the Other income (loss) on the Statements of Operations. All forward contracts have been settled as of July 1, 2022.
Table of Contents
58