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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2024-02-15 compared with 2023-02-22 · 31 added, 35 removed, 112 unchanged (37% of the section changed)

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At December 31, 2023 and 2022, the balances of our consolidated investments held under SMAs of $2,276.1 million and $2,854.6 million, respectively, were denominated entirely in U.S.

We are exposed to market price fluctuations related to our investment in Vodafone shares, which had an aggregate value of $1,168.1 million at December 31, 2023.

All of our Vodafone shares are held through the Vodafone Collar.

For information regarding the terms of the Vodafone Collar and Vodafone Collar Loan, see note 8 to our consolidated financial statements.

Our exposure to market risk is limited for the shares held through the Vodafone Collar.

For additional information regarding our investment in Vodafone shares, see note 7 to our consolidated financials statements.

Foreign Currency Risk

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Any increase (decrease) in the value of the U.S.

dollar against any foreign currency that is the functional currency of one of our operating subsidiaries will cause us to experience unrealized foreign currency translation losses (gains) with respect to amounts already invested in such foreign currencies.

dollar against any foreign currency that is the functional currency of one of our operating subsidiaries will cause us to experience

unrealized foreign currency translation losses (gains) with respect to amounts already invested in such foreign currencies.

Accordingly, we may experience a negative impact on our comprehensive earnings or loss and equity with respect to our holdings solely as a result of FX.

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In addition, our reported operating results are impacted by changes in the exchange rates for other local currencies in Europe.

We do not hedge against the risk that we may incur non-cash

losses upon the translation of the financial statements of our subsidiaries and affiliates into U.S.

We do not hedge against the risk that we may incur non-cash losses upon the translation of the financial statements of our subsidiaries and affiliates into U.S.

For additional information regarding certain currency instability risks, see Management’s Discussion and Analysis of Financial Condition and Results of Operations above.

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dollar, which is our reporting currency, are shown below, per one U.S.

As of December 31,

Euro 0.9038 0.9337

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Inflation and Foreign Investment Risk

We are subject to inflationary pressures with respect to labor, programming and other costs.

In this regard, inflation rates in the countries in which we operate have recently increased, and in many countries such increases have been significant.

We are subject to inflationary pressures, which remain elevated, with respect to labor, programming and other costs.

While we attempt to increase our revenue to offset increases in costs, there is no assurance that we will be able to do so.

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We are exposed to changes in interest rates primarily as a result of our borrowing activities, which include fixed-rate and variable-rate borrowings by our borrowing groups.

Our primary exposure to variable-rate debt is through the EURIBOR-indexed and LIBOR-indexed debt of our borrowing groups and the variable-rate debt of certain of our other subsidiaries.

Our primary exposure to variable-rate debt is through the EURIBOR-indexed and Term SOFR-indexed debt of our borrowing groups and the variable-rate debt of certain of our other subsidiaries.

In general, we enter into derivative instruments to protect against increases in the interest rates on our variable-rate debt.

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We use interest rate derivative contracts to exchange, at specified intervals, the difference between fixed and variable interest rates calculated by reference to an agreed upon notional principal amount.

From time to time we also use interest rate cap, floor and collar agreements and swaptions that lock in a maximum interest rate if variable rates rise, but also allow our company to benefit, to a limited extent in the case of collars, from declines in market rates.

From time to time, we also use interest rate cap, floor and collar agreements that lock in a maximum interest rate if variable rates rise, but also allow our company to benefit, to a limited extent in the case of collars, from declines in market rates.

Under our current guidelines, we use various interest rate derivative instruments to mitigate interest rate risk.

The final maturity dates of our various portfolios of interest rate derivative instruments might, in some instances, fall short of the respective maturities of the underlying variable-rate debt.

In this regard, we use judgment to determine the appropriate composition and maturity dates of our portfolios of interest rate derivative instruments, taking into account the relative costs and benefits of different maturity profiles in light of current and expected future market conditions, liquidity issues and other factors.

In this regard, we use judgment to determine the appropriate composition and maturity dates of our portfolios of interest rate derivative instruments,

taking into account the relative costs and benefits of different maturity profiles in light of current and expected future market conditions, liquidity issues and other factors.

For additional information concerning the impacts of these interest rate derivative instruments, see note 8 to our consolidated financial statements.

In July 2017, the U.K.

Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021.

Additionally, the European Money Markets Institute (the authority that administers EURIBOR) announced that measures would need to be undertaken by the end of 2021 to reform

EURIBOR to ensure compliance with the E.U.

Benchmarks Regulation.

In November 2020, ICE Benchmark Administration (the entity that administers LIBOR) announced its intention to continue publishing USD LIBOR rates until June 30, 2023, with the exception of the one-week and two-month rates which, along with all CHF and GBP LIBOR rates, it ceased to publish after December 31, 2021.

Furthermore, in November 2022, the U.K.

Financial Conduct Authority proposed that certain tenors of USD LIBOR would continue to be published on a synthetic basis until the end of September 2024.

While this extension allows additional runway on existing contracts using USD LIBOR rates, companies are still encouraged to transition away from using USD LIBOR as soon as practicable and should not enter into new contracts that use USD LIBOR after 2021.

There have been significant changes in the benchmark interest rates used to set floating rates on our debt and derivative instruments.

ICE Benchmark Administration (the entity that administers LIBOR) ceased to publish CHF and GBP LIBOR rates after December 31, 2021, and it ceased to publish USD LIBOR rates after June 30, 2023.

The methodology for EURIBOR has been reformed and EURIBOR has been granted regulatory approval to continue to be used.

Currently, there is no consensus amongst loan borrowers and investors for what rate(s) should replace USD LIBOR.

In October 2020, the International Swaps and Derivatives Association (the ISDA ) launched the Fallback Supplement, which, as of January 25, 2021, amended the standard definitions for interest rate derivatives to incorporate fallbacks for derivatives linked to certain key interbank offered rates ( IBORs ).

The ISDA also launched the Fallback Protocol, a protocol that enables market participants to incorporate these revisions into their legacy non-cleared derivatives with other counterparties that choose to adhere to the protocol.

The fallbacks for a particular currency apply following a permanent cessation of the IBOR in that currency, or in the case of a LIBOR setting, that LIBOR setting becoming permanently unrepresentative, and are adjusted versions of the risk-free rates identified in each currency.

Our credit agreements contain provisions that contemplate alternative calculations of the base rate applicable to our LIBOR-indexed and EURIBOR-indexed debt to the extent LIBOR or EURIBOR (as applicable) are not available, which alternative calculations we do not anticipate will be materially different from what would have been calculated under LIBOR or EURIBOR (as applicable).

Additionally, no mandatory prepayment or redemption provisions would be triggered under our credit agreements in the event that either the LIBOR rate or the EURIBOR rate is not available.

It is possible, however, that any new reference rate that applies to our LIBOR-indexed or EURIBOR-indexed debt could be different from any new reference rate that applies to our LIBOR-indexed or EURIBOR-indexed derivative instruments.

For discontinued currencies and tenors, we expect to continue taking steps to mitigate the changes in these benchmark rates, including by amending existing credit agreements and adhering to the Fallback Protocol, where appropriate.

We plan to continue to manage this difference and any resulting increased variable-rate exposure through modifications to our debt and/or derivative instruments, however, future market conditions may not allow immediate implementation of desired modifications and our subsidiaries may incur significant associated costs.

We have agreed amendments in respect of all of our debt and derivative instruments to replace the ceased rates.

For USD, these reference the Secured Overnight Financing Rate administered by the Federal Reserve Bank of New York or Term SOFR administered by CME Group Benchmark Administration Limited.

For CHF, these reference the Swiss Average Rate Overnight administered by the SIX Swiss Exchange.

For GBP, these reference the Sterling Overnight Index Average administered by the Bank of England.

Weighted Average Variable Interest Rate.

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To date, neither the access to nor the value of our cash and cash equivalent balances have been adversely impacted by liquidity problems of financial institutions.

At December 31, 2022 and 2021, our exposure to counterparty credit risk included (i) cash and cash equivalent and restricted cash balances of $1.7 billion and $0.9 billion, respectively, (ii) aggregate undrawn debt facilities of $1.5 billion and $1.6 billion, respectively, and (iii) derivative assets with an aggregate fair value of $922.5 million and $57.8 million, respectively.

At December 31, 2023 and 2022, our exposure to counterparty credit risk included (i) aggregate undrawn debt facilities of $1.6 billion and $1.5 billion, respectively, (ii) cash and cash equivalent and restricted cash balances of $1.4 billion and $1.7 billion, respectively, and (iii) derivative assets with an aggregate fair value of $232.9 million and $922.5 million, respectively.

Each of our subsidiary borrowing groups have entered into derivative instruments under master agreements with each counterparty that contain master netting arrangements that are applicable in the event of early termination by either party to such derivative instrument.

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However, in an insolvency of a derivative counterparty, under the laws of certain jurisdictions, the defaulting counterparty or its insolvency representatives may be able to compel the termination of one or more derivative contracts and trigger early termination payment liabilities payable by us, reflecting any mark-to-market value of the contracts for the counterparty.

Alternatively, or in addition, the insolvency laws of certain jurisdictions may require the mandatory set off of amounts due under such derivative contracts against present and future liabilities owed to us under other contracts between us and the relevant counterparty.

and the relevant counterparty.

Accordingly, it is possible that we may be subject to obligations to make payments, or may have present or future liabilities owed to us partially or fully discharged by set off as a result of such obligations, in the event of the insolvency of a derivative counterparty, even though it is the counterparty that is in default and not us.

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For additional information, see notes 8 and 9 to our consolidated financial statements.

UPC Holding Cross-currency and Interest Rate Derivative Contracts

Sunrise Holding Cross-currency and Interest Rate Derivative Contracts

Holding all other factors constant, at December 31, 2023:

(i) an instantaneous increase (decrease) of 10% in the value of the Swiss franc relative to the U.S.

dollar would have decreased (increased) the aggregate fair value of the UPC Holding cross-currency and interest rate derivative contracts by approximately €414 million ($444 million);

(ii) an instantaneous increase (decrease) of 10% in the value of the Swiss franc relative to the euro would have decreased (increased) the aggregate fair value of the UPC Holding cross-currency and interest rate derivative contracts by approximately €325 million ($348 million);

(iii) an instantaneous increase (decrease) in the relevant base rate of 50 basis points (0.50%) would have decreased (increased) the aggregate fair value of the UPC Holding cross-currency and interest rate derivative contracts by approximately €99 million ($106 million).

dollar would have decreased (increased) the aggregate fair value of the Sunrise Holding cross-currency and interest rate derivative contracts by approximately €444 million ($491 million);

(ii) an instantaneous increase (decrease) of 10% in the value of the Swiss franc relative to the euro would have decreased (increased) the aggregate fair value of the Sunrise Holding cross-currency and interest rate derivative contracts by approximately €259 million ($287 million);

(iii) an instantaneous increase (decrease) in the relevant base rate of 50 basis points (0.50%) would have increased (decreased) the aggregate fair value of the Sunrise Holding cross-currency and interest rate derivative contracts by approximately €95 million ($106 million).

Telenet Cross-currency and Interest Rate Derivative Contracts

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dollar would have decreased (increased) the aggregate fair value of the Telenet cross-currency and interest rate derivative contracts by approximately €302 million ($334 million);

(ii) an instantaneous increase (decrease) in the relevant base rate of 50 basis points (0.50%) would have decreased (increased) the aggregate fair value of the Telenet cross-currency and interest rate derivative contracts by approximately €72 million ($78 million).

(ii) an instantaneous increase (decrease) in the relevant base rate of 50 basis points (0.50%) would have increased (decreased) the aggregate fair value of the Telenet cross-currency and interest rate derivative contracts by approximately €85 million ($94 million).

Vodafone Collar

Holding all other factors constant, at December 31, 2023, (i) an instantaneous increase of 10% in the per share market price of Vodafone’s ordinary shares would have decreased the fair value of the Vodafone Collar by approximately €73 million ($81 million) and (ii) an instantaneous decrease of 10% in the per share market price of Vodafone’s ordinary shares would have increased the fair value of the Vodafone Collar by approximately €75 million ($83 million).

Projected Cash Flows Associated with Derivative Instruments

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(b) Includes the principal-related cash flows of our cross-currency swap contracts.

We may elect to use cash or the collective value of the related shares and Vodafone Collar to settle the Vodafone Collar Loan.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk