Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rates
We are exposed to interest rate risk associated with fluctuations in interest rates on our floating-rate debt under our Senior Facilities, which includes our $375 million Revolving Credit Facility and $2,283 million outstanding under the Term Loan Facility. As of December 31, 2021, there were no out standing borrowings under the Revolving Credit Facility and therefore our only variable-rate debt outstanding was the $2,283 million outstanding under the Term Loan Facility. As of December 31, 2021, assuming the Revolving Credit Facility was fully drawn, each 0.125% change in assumed blended interest rates would res ult in a $3 million cha nge in annual interest expense on indebtedness under the Senior Facilities.
Our Term Loan Facility bears interest at an annual rate equal to an applicable margin plus three-month LIBOR, subject to a 0.75% floor. We have entered into interest rate swap agreements indexed to three-month LIBOR in order to manage our risk from fluctuations in three-month LIBOR above the 0.75% floor. The fixed rates for each swap agreement are presented in the table below. As of December 31, 2021, the interest rate on the Term Loan Facility was 3.50%, equal to an applicable margin of 2.75% plus the 0.75% three-month LIBOR floor.
The key terms of the swaps outstanding as of December 31, 2021 are presented below:
Transaction Date Effective Date Notional Amount (in millions) Fixed Rate Paid (Received) Maturity Date
December 2016 February 3, 2017 $ 450.0 1.9040% February 3, 2022
December 2016 February 3, 2017 450.0 1.9040% February 3, 2022
February 2021 February 3, 2021 (900.0) (1.9040)% February 3, 2022
February 2021 February 9, 2021 1,350.0 2.3820% February 9, 2026
Total $ 1,350.0
Foreign Currencies
We are subject to foreign currency translation risk due to the translation of the results of our subsidiaries from their respective functional currencies to the U.S. dollar, our functional currency. As a result, we discuss our revenue on a constant currency as well as actual basis, highlighting our sensitivity to changes in foreign exchange rates. While the majority of our customers are invoiced, and the majority of our expenses are paid, by us or our subsidiaries in their respective functional currencies, we also have exposure to foreign currency transaction gains and losses as the result of certain receivables due from our foreign subsidiaries. As such, the results of operations and cash flows of our foreign subsidiaries are subject to fluctuations in foreign currency exchange rates. During 2021, we recognized foreign currency transaction losses of $3 million wit hin "Other income (expense), net" in our Consolidated Statements of Comprehensive Loss. As we continue to grow our international operations, our exposure to foreign currency translation and transaction risk could become more significant.
We have in the past and may in the future enter into foreign currency hedging instruments to limit our exposure to foreign currency risk.
In November 2018, we entered into one foreign currency forward contract. Under the terms of the contract, we sold £75 million at a rate of 1.3002 British pound sterling to U.S. dollar and received $97.5 million. This contract settled on November 29, 2019 and we received a final net payment of $0.8 million.
In November 2019, we entered into two foreign currency net-zero cost collar contracts with an aggregate notional amount of £100 million and a maturity date of November 30, 2020. Under the terms of the contracts, the British pound sterling to U.S. dollar exchange rate floats between 1.2375 and 1.3475. On March 26, 2020, we settled one of these contracts, with an aggregate notional amount of £50 million, and we received a final net payment of $1.9 million and on November 19, 2020, we settled the remaining contract, with an aggregate notional amount of £50 million, and we made a final net payment of $0.2 million.
During 2020, we entered into a series of foreign currency contracts to manage our exposure to movements in the British pound sterling, Euro, and Mexican peso. These contracts had three-month terms and settled at various dates throughout the year, which resulted in us making aggregate payments of $5.4 million. As of December 31, 2020, there was no notional amount outstanding related to these contracts.
- 82 -
Table of Contents
During the fourth quarter of 2020, we entered into two foreign currency forward contracts. Under the terms of these contracts, we sold a total of £80 million at an average rate of 1.3388 British pound sterling to U.S. dollar and received $107.1 million. These contracts settled on November 30, 2021 and we received a final net payment of $0.4 million.
See Item 8 of Part II, Financial Statements and Supplementary Data - Note 17, "Derivatives," for more information on interest rate swaps and foreign currency hedging contracts.
Power Prices
We are a large consumer of power. During 2021, we expensed approximately $44 million for utility companies to power our data centers, representing approximately 1% of our revenue. Power costs vary by geography, the source of power generation and seasonal fluctuations and are subject to certain proposed legislation that may increase our exposure to increased power costs. We have fixed price power contracts for data centers in the Dallas-Fort Worth, San Jose, Somerset, New Jersey and London areas that allow us to procure power either on a fixed price or on a variable price basis.
- 83 -
Table of Contents