Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest rate risk —We are exposed to interest rate risk, primarily associated with our long-term debt, including current maturities. The following table presents the scheduled installment amounts and related weighted-average interest rates of our long-term debt instruments by contractual maturity date. The scheduled installment amounts include the contractual principal and interest payments resulting from previously restructured debt. The following table presents information as of December 31, 2022 for each of the five years in the period ending December 31, 2027 and thereafter (in millions, except interest rate percentages):
Twelve months ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total
Fair value
Debt
Fixed rate (USD)
$
728
$
952
$
1,132
$
866
$
1,889
$
1,744
$
7,311
$
6,412
Average interest rate
5.08
%
5.87
%
5.44
%
6.37
%
4.01
%
6.87
%
At December 31, 2022 and 2021, the fair value of our outstanding debt was $6.41 billion and $5.66 billion, respectively. During the year ended December 31, 2022, the fair value of our debt increased by $751 million due to the following: (a) an increase of $469 million due to changes in the market prices of our outstanding debt, (b) an increase of $407 million due to borrowings under shipyard loans established to finance a portion of the final installments due upon delivery of Deepwater Atlas and Deepwater Titan and (c) a net increase of $388 million due to the issuance of the 4.625% Senior Guaranteed Exchangeable Bonds in private exchanges for a portion of the 0.50% Exchangeable Senior Bonds and the 7.25% Senior Notes and the sale of new securities, partially offset by (d) a decrease of $468 million due to scheduled repayments and (e) a decrease of $44 million due to early retirement. See Notes to Consolidated Financial Statements— Note 8—Debt .
The majority of our cash equivalents is subject to variable interest rates or short-term interest rates and such cash equivalents earn commensurately higher rates of return when interest rates increase.
Currency exchange rate risk —We are exposed to currency exchange rate risk primarily related to contract drilling revenues, employee compensation costs and purchasing costs that are denominated in currencies other than our functional currency, the U.S. dollar. We use a variety of techniques to minimize the exposure to currency exchange rate risk, including the structuring of customer contract payment terms and occasional use of forward exchange contracts. Our primary tool to manage currency exchange rate risk involves structuring customer contracts to provide for payment in both U.S. dollars and local currency. The payment portion denominated in local currency is based on anticipated local currency requirements over the contract term. Due to various factors, including customer acceptance, local banking laws, national content requirements, other statutory requirements, local currency convertibility, local inflation and revenue efficiency, actual local currency needs may vary from those realized in the customer contracts, resulting in partial exposure to currency exchange rate risk. The currency exchange effect resulting from our international operations generally has not had a material impact on our operating results. See Notes to Consolidated Financial Statements— Note 18—Risk Concentration .
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