Chesapeake Energy 2012 Annual Report Download - page 142
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
132
Foreign Currency Derivatives
In December 2006, we issued €600 million of 6.25% Euro-denominated Senior Notes due 2017. Concurrent with
the issuance of the euro-denominated senior notes, we entered into cross currency swaps to mitigate our exposure
to fluctuations in the euro relative to the dollar over the term of the notes. In May 2011, we purchased and subsequently
retired €256 million in aggregate principal amount of these senior notes following a tender offer, and we simultaneously
unwound the cross currency swaps for the same principal amount. As a result, we reclassified a loss of $38 million
from accumulated other comprehensive income to the consolidated statement of operations, $20 million of which
related to the unwound notional amount and was included in losses on purchases or exchanges of debt, and $18
million of which related to future interest associated with the unwound principal and was included in interest expense.
Under the terms of the remaining cross currency swaps, on each semi-annual interest payment date, the counterparties
pay Chesapeake €11 million and Chesapeake pays the counterparties $17 million, which yields an annual dollar-
equivalent interest rate of 7.491%. Upon maturity of the notes, the counterparties will pay Chesapeake €344 million
and Chesapeake will pay the counterparties $459 million. The terms of the cross currency swaps were based on the
dollar/euro exchange rate on the issuance date of $1.3325 to €1.00. Through the cross currency swaps, we have
eliminated any potential variability in Chesapeake’s expected cash flows related to changes in foreign exchange rates
and therefore the swaps are designated as cash flow hedges. The fair values of the cross currency swaps are recorded
on the consolidated balance sheet as a liability of $20 million at December 31, 2012. The euro-denominated debt in
long-term debt has been adjusted to $454 million at December 31, 2012 using an exchange rate of $1.3193 to €1.00.