HP 2014 Annual Report Download - page 87
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The swap transactions generally involve the exchange of fixed for floating interest payments. However,
we may choose not to swap fixed for floating interest payments or may terminate a previously executed
swap if we believe a larger proportion of fixed-rate debt would be beneficial.
In order to hedge the fair value of certain fixed-rate investments, we may enter into interest rate
swaps that convert fixed interest returns into variable interest returns. We may use cash flow hedges to
hedge the variability of LIBOR-based interest income received on certain variable-rate investments. We
may also enter into interest rate swaps that convert variable rate interest returns into fixed-rate interest
returns.
We have performed sensitivity analyses as of October 31, 2014 and 2013, using a modeling
technique that measures the change in the fair values arising from a hypothetical 10% adverse
movement in the levels of interest rates across the entire yield curve, with all other variables held
constant. The analyses cover our debt, investments, financing receivables and interest rate swaps. The
analyses use actual or approximate maturities for the debt, investments, financing receivables and
interest rate swaps. The discount rates used were based on the market interest rates in effect at
October 31, 2014 and 2013. The sensitivity analyses indicated that a hypothetical 10% adverse
movement in interest rates would result in a loss in the fair values of our debt, investments and
financing receivables, net of interest rate swaps, of $80 million at October 31, 2014 and $95 million at
October 31, 2013.
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