Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Currency and Interest Rate Risk Management
Market risks relating to our operations result primarily from changes in interest rates and changes in foreign currency exchange rates. Our exposure to interest rate risk results from the financial debt instruments that arise from transactions entered into during the normal course of business. Our exposure to foreign currency exchange risk is related to transactions in currencies other than the U.S. Dollar. As part of our overall risk management program, we evaluate and manage our exposure to changes in interest rates and currency exchange risks on an ongoing basis. Hedges and derivative financial instruments will be used in the future to manage our interest rate exposure. We only enter financial derivative contracts- to hedge a specific financial risk.
Currency Rate Risk. We may enter into forward foreign exchange contracts to hedge our foreign currency exposures on future programming production costs denominated in various foreign currencies. These contracts are entered into with major financial institutions as counterparties. As of March 31, 2025 and 2024, the Starz Business did not hold foreign exchange contracts. Were we to hold such contracts, we would be exposed to credit loss in the event of nonperformance by the counterparty, which is limited to the cost of replacing the contracts, at current market rates. We do not require collateral or other security to support these contracts.
Interest Rate Risk. Certain of our borrowings, primarily borrowings under our credit facilities, are expected to be at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on this variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income would decrease.
Our variable interest rate programming notes incur SOFR-based interest at a weighted average rate of approximately 6.51%. A quarter point increase in the interest rates on the outstanding principal amount of these notes at March 31, 2025 would result in $0.2 million increase in our annual net interest expense.
At March 31, 2025, our 5.5% Senior Notes had an outstanding carrying value of $699.9 million, and an estimated fair value of $623.7 million. A 1% increase in the level of interest rates would decrease the fair value of the 5.5% Senior Notes by approximately $21.2 million, and a 1% decrease in the level of interest rates would increase the fair value of the 5.5% Senior Notes by approximately $22.3 million.
The following table presents information about our financial instruments that are sensitive to changes in interest rates. The table also presents the cash flows of the principal amounts of the financial instruments, or the cash flows associated with the notional amounts of interest rate derivative instruments, and related weighted-average interest rates by expected maturity or required principal payment dates and the fair value of the instrument as of March 31, 2025:
Year Ended March 31, Fair Value
2026 2027 2028 2029 2030 Thereafter Total March 31, 2025
(Amounts in millions)
Variable Rates :
Programming notes $ 90.7 $ — $ — $ — $ — $ — $ 90.7 $ 90.7
Average Interest Rate 6.51 % — — — — —
Fixed Rates:
5.5% Senior Notes — — — — 715.0 — 715.0 623.7
Average Interest Rate — — — — 5.5 % —
60
Table of Contents