Chesapeake Energy 2013 Annual Report Download - page 75
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67
In addition to the open derivative positions disclosed above, as of December 31, 2013, we had $65 million of net
gains related to settled derivative contracts that will be recorded within interest expense as realized gains (losses) as
they are transferred from our senior note liability or within interest expense as unrealized gains (losses) over the
remaining seven-year term of our related senior notes.
Realized and unrealized gains or losses from interest rate derivative transactions are reflected as adjustments
to interest expense on the consolidated statements of operations.
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. Under the terms of the remaining cross currency
swaps, on each semi-annual interest payment date, the counterparties pay us €11 million and we pay the counterparties
$17 million, which yields an annual dollar-equivalent interest rate of 7.491%. Upon maturity of the notes, the
counterparties will pay us €344 million and we 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 our 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 an asset of $2 million as of December 31, 2013. The euro-
denominated debt in long-term debt has been adjusted to $473 million as of December 31, 2013 using an exchange
rate of $1.3743 to €1.00.