Time Warner Cable 2014 Annual Report Download - page 69

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TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)
MARKET RISK MANAGEMENT
Market risk is the potential gain/loss arising from changes in market rates and prices, such as interest rates.
Interest Rate Risk
Fixed-rate Debt
As of December 31, 2014, TWC had fixed-rate debt with an outstanding balance of $23.052 billion and an estimated
fair value of $27.842 billion. As discussed below, TWC has entered into interest rate swaps to effectively convert a
portion of its fixed-rate debt to variable-rate debt. Based on TWC’s fixed-rate debt obligations outstanding at
December 31, 2014, a 25 basis point increase or decrease in the level of interest rates would, respectively, decrease or
increase the fair value of the fixed-rate debt by approximately $608 million (excluding the impact of such rate changes on
the fair value of the interest rate swaps). Such potential increases or decreases are based on certain simplifying
assumptions, including a constant level of fixed-rate debt and an immediate, across-the-board increase or decrease in the
level of interest rates with no other subsequent changes for the remainder of the period.
Variable-rate Debt
As of December 31, 2014, TWC had an outstanding balance of variable-rate debt of $507 million. Based on TWC’s
variable-rate debt obligations outstanding as of December 31, 2014, each 25 basis point increase or decrease in the level
of interest rates would, respectively, increase or decrease TWC’s annual interest expense by approximately $1 million.
Such potential increases or decreases are based on certain simplifying assumptions, including a constant level of variable-
rate debt for all maturities and an immediate, across-the-board increase or decrease in the level of interest rates with no
other subsequent changes for the remainder of the period.
Additionally, as discussed below, TWC has entered into interest rate swaps to effectively convert a portion of its
fixed-rate debt to variable-rate debt.
Interest Rate Derivative Transactions
The Company is exposed to the market risk of changes in interest rates. To manage the volatility relating to these
exposures, the Company’s policy is to maintain a mix of fixed-rate and variable-rate debt by entering into various interest
rate derivative transactions to help achieve that mix. Using interest rate swaps, the Company agrees to exchange, at
specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed-upon
notional principal amount.
The following table summarizes the terms of the Company’s existing fixed to variable interest rate swaps as of
December 31, 2014:
Maturities .............................................................................. 2015-2019
Notional amount (in millions) .............................................................. $ 6,100
Weighted-average pay rate (variable based on LIBOR plus variable margins) ......................... 4.78%
Weighted-average receive rate (fixed) ........................................................ 6.58%
The notional amounts of interest rate instruments, as presented in the above table, are used to measure interest to be
paid or received and do not represent the amount of exposure to credit loss. Interest rate swaps represent an integral part of
the Company’s interest rate risk management program and resulted in a decrease in interest expense, net, of $116 million
in 2014.
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