Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Overview —We are exposed to interest rate risk, primarily associated with our long-term debt, including current maturities. Additionally, we are exposed to equity price risk related to certain of our exchangeable bonds and currency exchange rate risk related to our international operations.
Interest rate risk —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 expected maturity amounts, presented below, include both principal and other installments. The following table presents information as of December 31, 2023, for each of the five years in the period ending December 31, 2028 and thereafter (in millions, except interest rate percentages):
Years ended December 31,
2024
2025
2026
2027
2028
Thereafter
Total
Fair value
Debt
Fixed rate (USD)
$
391
$
1,140
$
1,182
$
1,936
$
664
$
1,970
$
7,283
$
7,308
Average interest rate
5.89
%
6.16
%
6.96
%
5.17
%
7.83
%
7.41
%
At December 31, 2023 and 2022, the fair value of our outstanding debt was $7.31 billion and $6.41 billion, respectively. During the year ended December 31, 2023, the fair value of our debt increased by $896 million due to the following: (a) an increase of $2.05 billion due to the issuance of the 8.375% senior secured notes due February 2028, 8.00% senior secured notes due September 2028 and the 8.75% senior secured notes due February 2030, (b) a net increase of $817 million resulting from changes in the market prices of our outstanding debt, partially offset by (c) a decrease of $1.36 billion due to early retirement of certain notes, (d) a decrease of $380 million due to the exchange of the 2.50% senior guaranteed exchangeable bonds due January 2027 and partial exchanges of the 4.00% senior guaranteed exchangeable bonds due December 2025 and the 4.625% senior guaranteed exchangeable bonds due September 2029 (the “4.625% Senior Guaranteed Exchangeable Bonds”) and (e) a decrease of $225 million due to scheduled installments. See Notes to Consolidated Financial Statements— Note 9—Debt and Notes to Consolidated Financial Statements— Note 19—Risk Concentration .
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.
Equity price risk —We are exposed to equity price risk primarily related to the bifurcated compound exchange feature contained within the 4.625% Senior Guaranteed Exchangeable Bonds. The compound exchange feature must be bifurcated from the host debt instrument since it is not considered indexed to our stock. The market price of our shares is the primary driver of the fair value of the exchange feature. At December 31, 2023, the fair value of the bifurcated compound exchange feature was $350 million. At December 31, 2023, a 10 percent hypothetical increase or decrease to the market price of our shares would result in a $43 million increase or decrease in the carrying amount of the exchange feature, recorded as a component of our debt, and a corresponding adjustment to interest expense. See Notes to Consolidated Financial Statements— Note 9—Debt and Notes to Consolidated Financial Statements— Note 19—Risk Concentration .
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 19—Risk Concentration .
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