Annual Report 2010 - Enel.com

Expected cash flows from interest rate derivatives
Millions of euro Fair value Stratification of expected cash flows
at Dec. 31,
2010 2011 2012 2013 2014 2015 Beyond
CFH on interest rates
Positive fair value 8 (2) (2) - 5 1 4
Negative fair value
FVH on interest rates
(569) (267) (186) (99) (51) (21) (50)
Positive fair value 9 3 2 2 1 1 4
Negative fair value
Trading derivatives on interest rates
- - - - - - -
Positive fair value 8 3 3 2 1 1 -
Negative fair value (190) (102) (61) (19) (9) (3) (30)
The amount of floating-rate debt that is not hedged
against interest rate risk is the main risk factor that could
impact the income statement (raising borrowing costs) in
the event of an increase in market interest rates.
At December 31, 2010, 39% of net long-term financial
debt was floating rate (51% at December 31, 2009). Taking
into account cash flow hedges of interest rates considered
effective pursuant to the IFRS-EU, 14% of the debt
was exposed to interest rate risk at December 31, 2010
(26% at December 31, 2009). Including interest rate derivatives
treated as hedges for management purposes but
ineligible for hedge accounting, the residual exposure
would be 7% (20% at December 31, 2009).
If interest rates had been 1 basis point higher at December
31, 2010, all other variables being equal, shareholders’ equity
would have been about €3 million higher (€5 million
at December 31, 2009) as a result of the increase in the fair
value of CFH derivatives on interest rates. Conversely, if interest
rates had been 1 basis point lower at that date, all
other variables being equal, shareholders’ equity would
have been €3 million lower (€5 million at December 31,
2009) as a result of the decrease in the fair value of CFH
derivatives on interest rates.
An equivalent increase (decrease) in interest rates, all other
variables being equal, would have a negative (positive)
impact on the income statement in terms of higher (lower)
interest expense on the portion of debt not hedged
against interest rate risk of about €301 thousand (€1 million
at December 31, 2009).
Exchange rate risk
Exchange rate risk is mainly generated with the following
transaction categories:
174 Enel Annual Report 2010 Consolidated financial statements
> debt denominated in currencies other than the functional
currency of the respective countries entered into
by the holding company or the individual subsidiaries;
> cash flows in respect of the purchase or sale of fuel or
electricity on international markets;
> cash flows in respect of investments in foreign currency,
dividends from unconsolidated foreign companies
or the purchase or sale of equity investments.
In order to minimize this risk, the Group normally uses a
variety of over-the-counter (OTC) derivatives such as currency
forwards, cross currency interest rate swaps and currency
options. The term of such contracts does not exceed
the maturity of the underlying financial liability, so that
any change in the fair value and/or cash flows of such contracts
is offset by a corresponding change in the fair value
and/or cash flows of the underlying position.
Cross currency interest rate swaps are used to transform
a long-term fixed- or floating-rate liability in foreign currency
into an equivalent fixed- or floating-rate liability in
euros. In addition to having notionals denominated in different
currencies, these instruments differ from interest
rate swaps in that they provide both for the periodic exchange
of cash flows and the final exchange of principal.
Currency forwards are contracts in which the counterparties
agree to exchange principal amounts denominated
in different currencies at a specified future date and exchange
rate (the strike). Such contracts may call for the actual
exchange of the two amounts (deliverable forwards)
or payment of the difference between the strike exchange
rate and the prevailing exchange rate at maturity (non-deliverable
forwards). In the latter case, the strike rate and/
or the spot rate may be determined as averages of the official
fixings of the European Central Bank.
Currency options involve the purchase (or sale) of the