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Derivative Instruments and Hedging Activity | 3 Months Ended
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Mar. 31, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments and Hedging Activities Disclosure [Text Block] | Note 7 – Derivative Instruments and Hedging Activity The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risk, including interest rate, liquidity and credit risk primarily by managing the amount, sources and duration of its debt funding and, to a limited extent, the use of derivative instruments. For additional information regarding the leveling of our derivatives (Refer to Note 9- Fair Value Measurements). The Company’s objective in using interest rate derivatives is to manage its exposure to interest rate movements and add stability to interest expense. To accomplish this objective, the Company uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable rate amounts from a counterparty in exchange for the Company making fixed rate payments over the life of the agreement without exchange of the underlying notional amount. In April 2012, the Company entered into an amortizing forward-starting interest rate swap agreement to hedge against changes in future cash flows resulting from changes in interest rates on $22.3 million in variable-rate borrowings. Under the terms of the interest rate swap agreement, the Company receives from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 1.92%. This swap effectively converted $22.3 million of variable-rate borrowings to fixed-rate borrowings from July 1, 2013 to May 1, 2019. As of March 31, 2017, this interest rate swap was valued as a liability of approximately $0.2 million. In December 2012, the Company entered into interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates on $25.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreement, the Company receives from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 0.89%. This swap effectively converted $25.0 million of variable-rate borrowings to fixed-rate borrowings from December 6, 2012 to April 4, 2018. As of March 31, 2017, this interest rate swap was valued as an asset of approximately $0.1 million. In September 2013, the Company entered into an interest rate swap agreement to hedge against changes in future cash flows resulting from changes in interest rates on $35.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreement, the Company receives from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 2.20%. This swap effectively converted $35.0 million of variable-rate borrowings to fixed-rate borrowings from October 3, 2013 to September 29, 2020. As of March 31, 2017, this interest rate swap was valued as a liability of approximately $0.6 million. In July 2014, the Company entered into interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates on $65.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreement, the Company receives from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 2.09%. This swap effectively converted $65.0 million of variable-rate borrowings to fixed-rate borrowings from July 21, 2014 to July 21, 2021. As of March 31, 2017, this interest rate swap was valued as a liability of approximately $0.7 million. In June 2016, the Company entered into an interest rate swap agreement to hedge against changes in future cash flows resulting from changes in interest rates on $40.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreement, the Company receives from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 1.40%. This swap effectively converted $40.0 million of variable-rate borrowings to fixed-rate borrowings from August 1, 2016 to July 1, 2023. As of March 31, 2017, this interest rate swap was valued as an asset of approximately $1.5 million. Companies are required to recognize all derivative instruments as either assets or liabilities at fair value on the balance sheet. The Company has designated these derivative instruments as cash flow hedges. As such, the effective portion of changes in the fair value of the derivatives designated and that qualify as cash flow hedges is recorded as a component of other comprehensive income (loss). The ineffective portion of the change in fair value of the derivative instrument is recognized directly in interest expense. For the three months ended March 31, 2017 and 2016, the Company has not recorded any hedge ineffectiveness in earnings. Amounts in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next twelve months, the Company estimates that an additional $1.0 million will be reclassified as an increase to interest expense. The Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (in thousands, except number of instruments):
|  | Number of Instruments |  | Notional |
Interest Rate |  | March 31, |  | December 31, |  | March 31, |  | December 31, |
Derivatives |  | 2017 |  | 2016 |  | 2017 |  | 2016 |
Interest Rate Swap |  |  | 5 |  |  | 5 |  | $ | 184,864 |  | $ | 185,044 |
The table below presents the estimated fair value of the Company’s derivative financial instruments, as well as their classification in the consolidated balance sheets (in thousands).
|  | Asset Derivatives |
|  | March 31, 2017 |  | December 31, 2016 |
|  | Balance Sheet |  |  |  | Balance Sheet |  |  |
|  | Location |  | Fair Value |  | Location |  | Fair Value |
Derivatives designated as cash flow hedges: |  |  |  |  |  |  |  |  |
Interest Rate Swaps |  | Other Assets |  | $ | 1,561 |  | Other Assets |  | $ | 1,409 |
|  | Liability Derivatives |
|  | March 31, 2017 |  | December 31, 2016 |
|  | Balance Sheet |  |  |  | Balance Sheet |  |  |
|  | Location |  | Fair Value |  | Location |  | Fair Value |
Derivatives designated as cash flow hedges: |  |  |  |  |  |  |  |  |
Interest Rate Swaps |  | Other Liabilities |  | $ | 1,404 |  | Other Liabilities |  | $ | 1,994 |
The table below displays the effect of the Company’s derivative financial instruments in the consolidated statements of operations and other comprehensive loss for the three and nine months ending March 31, 2017 and 2016 (in thousands).
|  |  |  | Location of |  |  |
|  |  |  | Income/(Loss) |  |  |
Derivatives in |  |  |  | Reclassifed from |  |  |
Cash Flow |  |  |  | Accumulated OCI |  | Amount of Income/(Loss) Reclassified |
Hedging |  | Amount of Income/(Loss) Recognized |  | into Income |  | from Accumulated OCI into Expense |
Relationships |  | in OCI on Derivative (Effective Portion) |  | (Effective Portion) |  | (Effective Portion) |
Three months ended March 31 |  |  | 2017 |  |  | 2016 |  |  |  |  | 2017 |  |  | 2016 |
Interest rate swaps |  | $ | 741 |  | $ | (2,935) |  | Interest Expense |  | $ | (464) |  | $ | (524) |
Credit-risk-related Contingent Features The Company has agreements with two of its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company's default on the indebtedness. As of March 31, 2017, the fair value of derivatives in a net liability position related to these agreements, which includes accrued interest but excludes any adjustment for nonperformance risk, was $1.2 million. As of March 31, 2017, the Company has not posted any collateral related to these net liability positions. If the Company had breached any of these provisions as of March 31, 2017, it could have been required to settle its obligations under the agreements at their termination value of $1.2 million. Although the derivative contracts are subject to master netting arrangements, which serve as credit mitigants to both us and our counterparties under certain situations, we do not net our derivative fair values or any existing rights or obligations to cash collateral on the consolidated balance sheets. The table below presents a gross presentation of the effects of offsetting and a net presentation of the Company’s derivatives as of March 31, 2017 and December 31, 2016. The gross amounts of derivative assets or liabilities can be reconciled to the Tabular Disclosure of Fair Values of Derivative Instruments above, which also provides the location that derivative assets and liabilities are presented on the consolidated balance sheets (in thousands):
As of March 31, 2017 |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Gross Amounts Not Offset in the |  |  |
|  |  |  |  |  |  |  | Statement of Financial Position |  |  |
|  |  |  | Gross Amounts |  | Net Amounts of |  |  |  |  |  |  |
|  | Gross Amounts |  | Offset in the |  | Assets presented |  |  |  |  |  |  |
|  | of Recognized |  | Statement of |  | in the statement of |  | Financial |  | Cash Collateral |  |  |
|  | Assets |  | Financial Position |  | Financial Position |  | Instruments |  | Received |  | Net Amount |
Derivatives |  | $ | 1,561 |  | $ | - |  | $ | 1,561 |  | $ | (89) |  | $ | - |  | $ | 1,472 |
Offsetting of Derivative Liabilities
As of March 31, 2017 |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Gross Amounts Not Offset in the |  |  |
|  |  |  |  |  |  |  | Statement of Financial Position |  |  |
|  |  |  | Gross Amounts |  | Net Amounts of |  |  |  |  |  |  |
|  | Gross Amounts |  | Offset in the |  | Liabilities presented |  |  |  |  |  |  |
|  | of Recognized |  | Statement of |  | in the statement of |  | Financial |  | Cash Collateral |  |  |
|  | Liabilities |  | Financial Position |  | Financial Position |  | Instruments |  | Received |  | Net Amount |
Derivatives |  | $ | 1,404 |  | $ | - |  | $ | 1,404 |  | $ | (89) |  | $ | - |  | $ | 1,315 |
Offsetting of Derivative Assets
As of December 31, 2016 |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Gross Amounts Not Offset in the |  |  |
|  |  |  |  |  |  |  | Statement of Financial Position |  |  |
|  |  |  |  |  | Gross Amounts |  |  | Net Amounts of |  |  |  |  |  |  |  |  |  |
|  |  | Gross Amounts |  |  | Offset in the |  |  | Assets presented |  |  |  |  |  |  |  |  |  |
|  |  | of Recognized |  |  | Statement of |  |  | in the statement of |  |  | Financial |  |  | Cash Collateral |  |  |  |
|  |  | Assets |  |  | Financial Position |  |  | Financial Position |  |  | Instruments |  |  | Received |  |  | Net Amount |
Derivatives |  | $ | 1,409 |  | $ | - |  | $ | 1,409 |  | $ | (50) |  | $ | - |  | $ | 1,359 |
As of December 31, 2016 |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Gross Amounts Not Offset in the |  |  |
|  |  |  |  |  |  |  | Statement of Financial Position |  |  |
|  |  |  | Gross Amounts |  | Net Amounts of |  |  |  |  |  |  |
|  | Gross Amounts |  | Offset in the |  | Liabilities presented |  |  |  |  |  |  |
|  | of Recognized |  | Statement of |  | in the statement of |  | Financial |  | Cash Collateral |  |  |
|  | Liabilities |  | Financial Position |  | Financial Position |  | Instruments |  | Received |  | Net Amount |
Derivatives |  | $ | 1,994 |  | $ | - |  | $ | 1,994 |  | $ | (50) |  | $ | - |  | $ | 1,944 |

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