The fair value of derivative instruments is subject to the fluctuations in market interest rates and foreign currency exchange rates. Since the Company has elected not to apply hedge accounting, the volatility in the changes in fair value of these derivative instruments is recognized in earnings. All periodic interest settlements of derivative instruments are presented within cash flows from operating activities in the consolidated statements of cash flows. The final notional exchange of cross currency swaps are presented within cash flows from financing activities along with the paydowns of the related foreign currency denominated debt.

These derivative instruments also contain an element of credit risk in the event the counterparties are unable to meet the terms of the agreements. However, the Company minimizes the risk exposure by limiting the counterparties to major financial institutions that meet established credit guidelines. In the event of default, all counterparties are subject to legally enforceable master netting agreements. In Canada, HCFI is a party to a reciprocal credit support annex that requires posting of cash collateral to mitigate counterparty credit risk on derivative positions. Posted collateral is recognized in other assets and held collateral is recognized in other liabilities.

The notional balances and fair values of the Company’s derivatives are presented below. The derivative instruments are presented on a gross basis in the Company’s consolidated balance sheets. Refer to Note 13 regarding the valuation of derivative instruments.


	March 31,
	2025						2024
	Notional balances		Assets		Liabilities		Notional balances		Assets		Liabilities

	(U.S. dollars in millions)
Interest rate swaps	$	73,058	$	338	$	676	$	64,146	$	714	$	881
Cross currency swaps	8,225		51		444		5,755		29		591
Gross derivative assets/liabilities			389		1,120				743		1,472
Collateral posted/held			43		—				1		9
Counterparty netting adjustment			(429)		(429)				(701)		(701)
Net derivative assets/liabilities			$	3	$	691			$	43	$	780

The income statement impact of derivative instruments is presented below. There were no derivative instruments designated as part of a hedge accounting relationship during the periods presented.


	Years ended March 31,
	2025		2024		2023

	(U.S. dollars in millions)
Interest rate swaps	$	(52)	$	132	$	113
Cross currency swaps	(120)		(151)		(810)
Total loss on derivative instruments	$	(172)	$	(19)	$	(697)