Cogeco 2014 Annual Report Download - page 94

Consolidated financial statements COGECO CABLE INC. 2014 93
The following table is a summary of interest payable on long-term debt (excluding interest on finance leases) that is due for each of the next
five years and thereafter, based on the principal amount and interest rate prevailing on the outstanding debt at August 31, 2014 and their
respective maturities:
2015 2016 2017 2018 2019 Thereafter Total
(In thousands of Canadian dollars) $ $ $ $ $ $ $
Interest payments on long-term debt 114,593 110,612 102,435 99,094 88,093 233,475 748,302
Interest receipts on derivative financial
instruments (14,773) (7,231) — — — — (22,004)
Interest payments on derivative financial
instruments 15,404 7,307 — — — — 22,711
115,224 110,688 102,435 99,094 88,093 233,475 749,009
Interest rate risk
The Corporation is exposed to interest rate risks for both fixed and floating interest rate instruments. Interest rates fluctuations will have an
effect on the valuation and collection or repayment of these instruments. At August 31, 2014, all of the Corporation’s long-term debt was at
fixed rate, except for the Corporation’s Term Revolving Facility and First Lien Credit Facilities. To mitigate such risk, the Corporation has
entered on July 22, 2013 into interest rate swap agreements to fix the interest rate of US$200 million of its LIBOR based loans. These
agreements have the effect of converting the floating US LIBOR base rate at an average fixed rate of 0.39625% under the Term Revolving
Facility and First Lien Credit Facilities until July 25, 2015. The Corporation elected to apply hedge accounting on these derivative financial
instruments. The sensitivity of the Corporation’s annual financial expense to a variation of 1% in the interest rate applicable to these facilities
is approximately $3.7 million based on the current debt at August 31, 2014.
Foreign exchange risk
The Corporation is exposed to foreign exchange risk related to its long-term debt denominated in US dollars that is not designated as a
hedge on its US dollar net investments. In order to mitigate this risk, the Corporation has established guidelines whereby cross-currency
swap agreements can be used to fix the exchange rates applicable to its US dollar denominated long-term debt. All such agreements are
exclusively used for hedging purposes. Accordingly, on October 2, 2008, the Corporation entered into cross-currency swap agreements to
set the liability for interest and principal payments on its US$190 million Senior Secured Notes Series A issued on October 1, 2008 and
maturing on October 1, 2015. These agreements have the effect of converting the US interest coupon rate of 7.00% per annum to an average
Canadian dollar interest rate of 7.24% per annum. The exchange rate applicable to the principal portion of the debt has been fixed at $1.0625.
The Corporation elected to apply cash flow hedge accounting on these derivative financial instruments. The impact of a 10% change in the
exchange rate of the US dollar and British Pound into Canadian dollars would change financial expense by approximately $6.2 million based
on the outstanding debt at August 31, 2014.
The Corporation is also exposed to foreign exchange risk on cash and cash equivalents, trade and other receivables and trade and other
payables and provisions denominated in US dollars, Euros or British Pounds. The Corporation’s exposure to foreign currency risk is as
follows:
At August 31, 2014 2013
US Euro British Pounds US Euro British Pounds
(In thousands of Canadian dollars) $ $ $ $ $ $
Financial assets (liabilities)
Cash and cash equivalents 4,939 681 185 7,394 1,171 257
Trade and other receivables 534 — — — — —
Trade and other payables and provisions (18,109) (7,144 ) — (16,554) (6,933) —
(12,636) (6,463 ) 185 (9,160) (5,762) 257
Due to their short-term nature, the risk arising from fluctuations in foreign exchange rates is usually not significant. The impact of a 10%
fluctuation in the foreign exchange rates (US dollar, Euro and British Pound) would change financial expense by approximately $1.9 million.
Furthermore, the Corporation’s investment in foreign operations is exposed to market risk attributable to fluctuations in foreign currency
exchange rates, primarily changes in the values of the Canadian dollar versus the US dollar and British Pound. This risk was mitigated since
the major part of the purchase prices for Atlantic Broadband and Peer 1 Hosting were borrowed directly in US dollars and British Pounds.
At August 31, 2014, the investments for Atlantic Broadband and for Peer 1 Hosting in aggregate amounted to US$1.1 billion and £62.6
million while long-term debt hedging these net investments were US$860.5 million and £55.6 million, respectively. The exchange rate used
to convert the US dollar currency and British Pound currency into Canadian dollar for the statement of financial position accounts at August 31,
2014 was $1.0873 ($1.0530 in 2013) per US dollar and $1.8052 ($1.6318 in 2013) per British Pound. The impact of a 10% change in the
exchange rate of the US dollar and British Pound into Canadian dollars would change other comprehensive income by approximately $26.1
million.