Rogers 2008 Annual Report Download - page 114

110 ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cross- Cross-
Currency Currency
Swaps in an Swaps in a Net
asset liability liability
position position position
(A) (B) (A) + (B)
Mark-to-market value – risk-free analysis $ 572 $ (716) $ (144)
Mark-to-market value – credit-adjusted estimate (carrying value) 507 (661) (154)
Difference $ (65) $ 55 $ (10)
amount of Senior Notes due 2018 from a fixed coupon rate of 6.80%
into Cdn. $1,435 million at a weighted average fixed interest rate of
6.80%; and (b) converting the U.S. $350 million aggregate principal
amount of Senior Notes due 2038 from a fixed coupon rate of 7.50%
into Cdn. $359 million at a weighted average fixed interest rate of
7.53%. The Cross-Currency Swaps hedging the Senior Notes due 2018
have been designated as effective hedges against the designated
U.S. dollar-denominated debt for accounting purposes, while the
Cross-Currency Swaps hedging the Senior Notes due 2038 have not
been designated as hedges for accounting purposes.
Also effective on August 6, 2008, the Company re-couponed three
of its existing Cross-Currency Swaps by terminating the original
Cross-Currency Swaps aggregating U.S. $575 million notional
principal amount and simultaneously entering into three new Cross-
Currency Swaps aggregating U.S. $575 million notional principal
amount at then current market rates. In each case, only the fixed
foreign exchange rate and the Canadian dollar fixed interest rate
were changed and all other terms for the new Cross-Currency
Swaps are identical to the respective terminated Cross-Currency
Swaps they are replacing. The termination of the three original
Cross-Currency Swaps resulted in the Company paying U.S. $360
million (Cdn. $375 million) for the aggregate out-of-the-money
fair value for the terminated Cross-Currency Swaps on the date of
termination, thereby reducing by an equal amount, the fair value
of the derivative instruments liability on that date. The three new
Cross-Currency Swaps have the effect of converting U.S. $575 million
aggregate notional principal amount of U.S. dollar denominated
debt from a weighted average U.S. dollar fixed interest rate of
7.20% into notional Cdn. $589 million ($1.025 exchange rate) at a
weighted average Canadian dollar fixed interest rate of 6.88%. In
comparison, the original Cross-Currency Swaps had the effect of
converting U.S. $575 million aggregate notional principal amount
of U.S. dollar-denominated debt from a weighted average U.S.
dollar fixed interest rate of 7.20% into notional Cdn. $815 million
($1.4177 exchange rate) at a weighted average Canadian dollar
fixed interest rate of 7.89%. Each of the three new Cross-Currency
Swaps has been designated as a hedge against the designated U.S.
dollar-denominated debt for accounting purposes.
Prior to the termination of the Cross-Currency Swaps noted
above, changes in the fair value of these Cross-Currency Swaps
had been recorded in accumulated other comprehensive
income and were periodically reclassified to income to offset
foreign exchange gains or losses on related debt or to modify
interest expense to its hedged amount. The remaining balance
in accumulated other comprehensive income relating to these
terminated Cross-Currency Swaps on the termination date was
$144 million. The portion related to future periodic exchanges
of interest of $68 million, net of income taxes of $26 million, will
be recorded in income over the remaining life of the specific
debt securities to which the settled hedging items related
using the effective interest rate method. The portion of the
remaining balance that relates to the future principal exchange
of $43 million, net of income taxes of $7 million, will remain in
accumulated other comprehensive income until such time as the
related debt is settled. The total amortization of re-couponed
Cross-Currency Swaps is $3 million for 2008 and is recorded in
interest expense.
In addition, two Cross-Currency Swaps matured on December 15,
2008. These Cross-Currency Swaps hedged the foreign exchange
risk related to the U.S. $400 million 8.00% Senior Subordinated
Notes due 2012. As a result of the maturity of these Cross-Currency
Swaps, the Company’s U.S. $400 million 8.00% Senior Subordinated
Notes due 2012 are no longer hedged. Proceeds of $494 million
(U.S. $400 million) were received on the settlement of the Cross-
Currency Swaps and a payment of $475 million was made. In
addition, upon settlement of forward foreign exchange contracts on
December 15, 2008, proceeds of $476 million were received and
payments on the forward contracts of $494 million (U.S. $400 million)
were made.
The effect of estimating the credit-adjusted fair value of Cross-
Currency Swaps at December 31, 2008 is illustrated in the table
below. As at December 31, 2008, the net liability of the Company’s
swap portfolio increased by $10 million to $154 million versus the
net liability calculated using risk-free rates. The increase in the
net liability is a result of the estimated fair value of the Cross-
Currency Swaps in an asset position decreasing by $65 million
while the estimated fair value of the Cross-Currency Swaps in a
liability position decreased by $55 million. In 2007, the estimated
fair value, being carrying amount, was determined on a risk-
free basis.