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SEC Filings

10-Q
CHARTER COMMUNICATIONS, INC. /MO/ filed this Form 10-Q on 11/03/2016
Entire Document
 


Item 3.     Quantitative and Qualitative Disclosures About Market Risk.

We use derivative instruments to manage interest rate risk on variable debt and foreign exchange risk on the Sterling Notes, and do not hold or issue derivative instruments for speculative trading purposes.

Interest rate derivative instruments are used to manage interest costs and to reduce our exposure to increases in floating interest rates. We manage our exposure to fluctuations in interest rates by maintaining a mix of fixed and variable-rate debt. Using interest rate derivative instruments, we agree to exchange, at specified intervals through 2017, the difference between fixed and variable interest amounts calculated by reference to agreed-upon notional principal amounts.

Upon closing of the TWC Transaction, we assumed cross-currency derivative instruments. Cross-currency derivative instruments are used to effectively convert £1.275 billion aggregate principal amount of fixed-rate British pound sterling denominated debt, including annual interest payments and the payment of principal at maturity, to fixed-rate U.S. dollar denominated debt. The cross-currency derivative instruments have maturities of June 2031 and July 2042. We are required to post collateral on the cross-currency derivative instruments when such instruments are in a liability position. In May 2016, we entered into a collateral holiday agreement for 80% of both the 2031 and 2042 cross-currency swaps, which eliminates the requirement to post collateral for three years. For more information, see Note 10 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.”
      
As of September 30, 2016 and December 31, 2015, the principal amount of our debt was approximately $60.2 billion and $35.9 billion, respectively. As of December 31, 2015, this included $21.8 billion of debt which proceeds were held in escrow pending consummation of the TWC Transaction. As of September 30, 2016 and December 31, 2015, the weighted average interest rate on the credit facility debt, including the effects of our interest rate swap agreements, was approximately 3.2% and 3.3%, respectively, and the weighted average interest rate on the senior notes was approximately 5.9% and 5.5%, respectively, resulting in a blended weighted average interest rate of 5.5% and 5.1%, respectively. The interest rate on approximately 87% and 83% of the total principal amount of our debt was effectively fixed, including the effects of our interest rate swap agreements as of September 30, 2016 and December 31, 2015, respectively.
  
The table set forth below summarizes the fair values and contract terms of financial instruments subject to interest rate risk maintained by us as of September 30, 2016 (dollars in millions).

 
2016
 
2017
 
2018
 
2019
 
2020
 
Thereafter
 
Total
 
Fair Value
Debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-Rate
$

 
$
2,000

 
$
2,000

 
$
3,250

 
$
3,500

 
$
40,453

 
$
51,203

 
$
56,899

Average Interest Rate
%
 
5.85
%
 
6.75
%
 
8.44
%
 
4.19
%
 
5.76
%
 
5.86
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable Rate
$
49

 
$
197

 
$
197

 
$
296

 
$
1,716

 
$
6,510

 
$
8,965

 
$
8,975

Average Interest Rate
2.91
%
 
3.21
%
 
3.35
%
 
3.99
%
 
3.81
%
 
4.41
%
 
4.22
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Rate Instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable to Fixed-Rate
$
250

 
$
850

 
$

 
$

 
$

 
$

 
$
1,100

 
$
8

Average Pay Rate
3.89
%
 
3.84
%
 
%
 
%
 
%
 
%
 
3.86
%
 
 
Average Receive Rate
3.17
%
 
3.35
%
 
%
 
%
 
%
 
%
 
3.31
%
 
 

As of September 30, 2016, we had $1.1 billion in notional amounts of interest rate derivative instruments outstanding. The notional amounts of interest rate derivative instruments do not represent amounts exchanged by the parties and, thus, are not a measure of our exposure to credit loss. The amounts exchanged are determined by reference to the notional amount and the other terms of the contracts.

The estimated fair value of the interest rate derivative instruments is determined using a present value calculation based on an implied forward LIBOR curve (adjusted for Charter Operating’s and counterparties’ credit risk). Interest rates on variable-rate debt are estimated using the average implied forward LIBOR for the year of maturity based on the yield curve in effect at September 30, 2016 including applicable bank spread.



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