OUTFRONT Media Inc. 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk. We are exposed to market risk related to commodity prices and foreign currency exchange rates, and to a limited extent, interest rates and credit risks. Commodity Price Risk We incur various operating costs that are subject to price risk caused by volatility in underlying commodity values. Commodity price risk is present in electricity costs associated with powering our digital billboard displays and lighting our traditional static billboard displays at night. We do not currently use derivatives or other financial instruments to mitigate our exposure to commodity price risk. However, we do enter into contracts with commodity providers to limit our exposure to commodity price fluctuations. For the year ended December 31, 2019, such contracts accounted for 18.0% of our total utility costs. As of June 30, 2020, we had active electricity purchase agreements with fixed contract rates for locations throughout Connecticut, Illinois, New Jersey, New York, Pennsylvania, Ohio and Texas, which expire at various dates until June 2024. Foreign Exchange Risk Foreign currency translation risk is the risk that exchange rate gains or losses arise from translating our Canadian business’s statements of earnings and statements of financial position from functional currency to our reporting currency (the U.S. Dollar) for consolidation purposes. Any gain or loss on translation is included within comprehensive income and Accumulated other comprehensive income on our Consolidated Statement of Financial Position. The functional currency of our international subsidiaries is their respective local currency. As of June 30, 2020, we have $10.6 million of unrecognized foreign currency translation losses included within Accumulated other comprehensive loss on our Consolidated Statement of Financial Position. Substantially all of our transactions at our Canadian subsidiary are denominated in their local functional currency, thereby reducing our risk of foreign currency transaction gains or losses. We do not currently use derivatives or other financial instruments to mitigate foreign currency risk, although we may do so in the future. 50 Table of Contents Interest Rate Risk We are subject to interest rate risk to the extent we have variable-rate debt outstanding including under the Senior Credit Facilities and the AR Securitization Facilities. As of June 30, 2020, we had a $600.0 million variable-rate Term Loan due 2026 outstanding, which has an interest rate of 1.9% per year. An increase or decrease of 1/4% in our interest rate on the Term Loan will change our annualized interest expense by approximately $1.0 million. As of June 30, 2020, there were no outstanding borrowings under the AR Facility and $80.0 million of outstanding borrowings under the Repurchase Facility, at a borrowing rate of 1.9%. An increase or decrease of 1/4% in our interest rate on the AR Securitization Facilities will change our annualized interest expense by approximately $0.2 million. We have several interest rate cash flow swap agreements to effectively convert a portion of our LIBOR-based variable rate debt to a fixed rate and hedge our interest rate risk related to such variable rate debt. The fair value of these swap positions was a net unrecognized loss of approximately $8.3 million as of June 30, 2020, and is included in Other liabilities on our Consolidated Statement of Financial Position. The following table provides information about our interest rate swap agreements, which are sensitive to changes in interest rates. Notional amounts are used to calculate the contractual cash flows to be exchanged under the agreements. (in millions, except percentages) 2021 2022 2023 2024 2025 Thereafter Total Fair Value Loss as of 6/30/20 Pay fixed/receive variable $ 150.0 $ 50.0 $ — $ — $ — $ — $ 200.0 $ 8.3 Average pay rate 2.7 % 1.8 % — % — % — % — % Average receive rate (a) one-month LIBOR one-month LIBOR — — — — (a) The one-month LIBOR rate was approximately 0.2% as of June 30, 2020. Credit Risk In the opinion of our management, credit risk is limited due to the large number of customers and advertising agencies utilized. We perform credit evaluations on our customers and agencies and believe that the allowances for credit losses are adequate. We have experienced an increase in the allowance for credit losses as a result of the COVID-19 pandemic and accordingly, we recorded additional provisions for doubtful accounts in the first quarter of 2020. We do not currently use derivatives or other financial instruments to mitigate credit risk.