Rogers 2015 Annual Report Download - page 63

MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL RISK MANAGEMENT
We use derivative instruments from time to time to manage risks related to our business activities, summarized as follows:
Derivative The risk they manage Types of derivative instruments
Debt derivatives • Impact of fluctuations in foreign exchange rates
on principal and interest payments for US dollar-
denominated long-term debt
• Cross-currency interest rate exchange
agreements
• Forward foreign exchange agreements
(from time to time as necessary)
Bond forwards • Impact of fluctuations in market interest rates on
forecasted interest payments for expected long-
term debt
• Forward interest rate agreements
Expenditure derivatives • Impact of fluctuations in foreign exchange rates on
forecasted US dollar-denominated expenditures
• Forward foreign exchange agreements
Equity derivatives • Impact of fluctuations in share price on stock-
based compensation expense
• Total return swap agreements
We also manage our exposure to fluctuating interest rates and we
have fixed the interest rate on 90.3% of our debt, including short-
term borrowings, as at December 31, 2015 (2014 – 92.7%).
(%)
FIXED AND FLOATING DEBT AS A PERCENTAGE OF TOTAL BORROWINGS
FIXED 90.3%
FLOATING 9.7%
$15.9
BILLION
All of our currently outstanding debt derivatives, bond forwards,
and expenditure derivatives have been designated as hedges for
accounting purposes.
DEBT DERIVATIVES
We use cross-currency interest rate exchange agreements (debt
derivatives) to hedge the foreign exchange risk on all of the interest
and principal payment obligations of our US dollar-denominated
senior notes and debentures.
New debt derivatives to hedge new senior notes issued
US Hedging effect
(In millions of dollars,
except interest rates)
Effective date
Principal/
Notional
amount
(US$)
Maturity
date
Coupon
rate
Fixed
hedged
Cdn$
interest
rate 1
Equivalent
(Cdn$)
December 8, 2015 700 2025 3.625% 3.566% 937
December 8, 2015 300 2044 5.000% 5.145% 401
March 10, 2014 750 2044 5.000% 4.990% 832
1Converting from a fixed US$ coupon rate to a weighted average Cdn$ fixed rate.
Matured debt derivatives
(In millions of dollars)
Maturity date
Notional amount
(US$)
Net cash
(proceeds) settlement
(Cdn$)
March 15, 2015 550 (106)
March 15, 2015 280 (48)
Total 830 (154)
March 1, 2014 750 (61)
March 15, 2014 350 26
Total 1,100 (35)
As at December 31, 2015, we had US$6.2 billion of US dollar-
denominated senior notes and debentures, all of which were
hedged using debt derivatives.
As at December 31
(In millions of dollars, except exchange rates,
percentages, and years) 2015 2014
US dollar-denominated long-term debt 1US$ 6,200 US$ 6,030
Hedged with debt derivatives US$ 6,200 US$ 6,030
Hedged exchange rate 1.0882 1.0470
Percent hedged 2100.0% 100.0%
Amount of borrowings at fixed rates 3
Total borrowings $ 15,947 $ 15,055
Total borrowings at fixed rates $ 14,397 $ 13,963
Percent of borrowings at fixed rates 90.3% 92.7%
Weighted average interest rate on borrowings 4.82% 5.20%
Weighted average term to maturity 10.8 years 10.8 years
1US dollar-denominated long-term debt reflects the hedged exchange rate and the
hedged interest rate.
2Pursuant to the requirements for hedge accounting under IAS 39, Financial
Instruments: Recognition and Measurement, on December 31, 2015, and
December 31, 2014, RCI accounted for 100% of its debt derivatives as hedges
against designated US dollar-denominated debt. As a result, on December 31, 2015
and 2014, 100% of our US dollar-denominated debt is hedged for accounting and
economic purposes.
3Borrowings include long-term debt, including the impact of debt derivatives, and
short-term borrowings associated with our accounts receivable securitization
program.
2015 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 61