Interest Expense Interest expense, excluding the effect of interest rate derivatives which do not qualify for hedge accounting, for the three months ended December 31, 2010 was $6.0 million. The Company's borrowings under its credit facility averaged $547.6 million during the three months ended December 31, 2010 and were $532.8 million at December 31, 2010. There were $48.0 million preferred shares throughout the period giving total average borrowings of $595.6 million. Interest expense in the comparative period in 2009 was $6.1 million. Average borrowings in the three months ended December 31, 2009, including the preferred shares, were $641.8 million.
For the year ended December 31, 2010, interest expense, excluding the effect of interest rate derivatives which do not qualify for hedge accounting, was $23.8 million. The Company's borrowings under its credit facility together with the preferred shares averaged $615.7 million during this period. Interest expense in 2009 was $24.2 million, including $2.2 million accelerated write off of deferred financing fees, based on average borrowings including the preferred shares of $608.7 million in the period.
Interest income for the three months ended December 31, 2010 and 2009 was not material. For the year ended December 31, 2010, interest income was $0.2 million and was $0.5 million in the comparative 2009 period.
Change in Fair Value of Financial Instruments The Company hedges its interest rate exposure by entering into derivatives that swap floating rate debt for fixed rate debt to provide long-term stability and predictability to cash flows. As these hedges do not qualify for hedge accounting under US GAAP, the outstanding hedges are marked to market at each period end with any change in the fair value being booked to the income and expenditure account. The Company's derivative hedging instruments gave a $7.4 million gain in the three months ended December 31, 2010, reflecting primarily movements in the forward curve for interest rates. Of this amount, $4.3 million was a realized loss for settlements of swaps in the period and $11.7 million was an unrealized gain for revaluation of the balance sheet position. This compares to a $0.7 million gain in the three months ended December 31, 2009 of which $4.4 million was a realized loss and $5.1 million was an unrealized gain.For the year ended December 31, 2010 the total loss from derivative hedging instruments was $32.0 million of which $16.7 million was realized and $15.3 million unrealized compared to a total gain in 2009 of $4.8 million of which $13.1 million was a realized loss and $17.9 million was an unrealized gain.
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