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Derivative Instruments and Hedging Activity | 9 Months Ended
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Sep. 30, 2021
Derivative Instruments and Hedging Activity |
Derivative Instruments and Hedging Activity | Note 9 – Derivative Instruments and Hedging Activity Background 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 the Company’s derivatives, refer to Note 10 – 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. Recent Hedges In May and July 2021, the Company entered into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of $300.0 million of long-term debt. The Company hedged its exposure to the variability in future cash flows for a forecasted issuance of long-term debt over a maximum period ending December 2022. As of September 30, 2021, these interest rate swaps were valued as a liability of approximately $0.8 million. Recent Settlements Settlements Impacting Current and Future Interest Expense In June 2019, the Company entered into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of $100.0 million of long-term debt. The Company hedged its exposure to the variability in future cash flows for a forecasted issuance of long-term debt over a maximum period ending March 2021. In August 2020, the Company terminated the swap agreements upon the debt issuance, paying $16.1 million upon termination. This settlement was included as a component of accumulated OCI, to be recognized as an adjustment to income over the term of the debt. In February 2020, the Company entered into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of $100.0 million of long-term debt. The Company hedged its exposure to the variability in future cash flows for a forecasted issuance of long-term debt over a maximum period ending March 2021. In August 2020, the Company terminated the swap agreements upon the debt issuance, paying $7.3 million upon termination. This settlement was included as a component of accumulated OCI, to be recognized as an adjustment to income over the term of the debt. In August 2020, the Company entered into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of $100.0 million of long-term debt. The Company hedged its exposure to the variability in future cash flows for a forecasted issuance of long-term debt over a maximum period ending February 2022. In May 2021, the Company terminated the swap agreements upon the debt issuance, receiving $8.0 million upon termination. This settlement was included as a component of accumulated OCI, to be recognized as an adjustment to income over the term of the debt. In December 2020, the Company entered into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of $100.0 million of long-term debt. The Company hedged its exposure to the variability in future cash flows for a forecasted issuance of long-term debt over a maximum period ending February 2022. In May 2021, the Company terminated the swap agreements upon the debt issuance, receiving $5.6 million upon termination. This settlement was included as a component of accumulated OCI, to be recognized as an adjustment to income over the term of the debt. In February 2021, the Company entered into forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the forecasted issuance date of $100.0 million of long-term debt. The Company hedged its exposure to the variability in future cash flows for a forecasted issuance of long-term debt over a maximum period ending February 2022. In May 2021, the Company terminated the swap agreements upon the debt issuance, receiving $3.1 million upon termination. This settlement was included as a component of accumulated OCI, to be recognized as an adjustment to income over the term of the debt. Settlements Impacting Current Year Results of Operations Only 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 agreements, the Company received from the counterparty interest on the notional amount based on one month LIBOR and pays to the counterparty a fixed rate of 2.09%. These swaps effectively converted $65.0 million of variable-rate borrowings to fixed-rate borrowings from July 21, 2014 to July 21, 2021. In May 2021, the Company terminated the swap agreements upon the payoff of the related term loan, paying $0.3 million upon termination. This settlement was recognized as an expense during the nine months ended September 30, 2021. 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 received from the counterparty interest on the notional amount based on one 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. In May 2021, the Company terminated the swap agreements upon the payoff of the related term loan, paying $1.0 million upon termination. This settlement was recognized as an expense during the nine months ended September 30, 2021. In December 2018, the Company entered into interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates on $100.0 million in variable-rate borrowings. Under the terms of the interest rate swap agreements, the Company received from the counterparty interest on the notional amount based on one month LIBOR and pays to the counterparty a fixed rate of 2.66%. These swaps effectively converts $100.0 million of variable-rate borrowings to fixed-rate borrowings from December 27, 2018 to January 15, 2026. In May 2021, the Company terminated the swap agreements upon the payoff of the related term loan, paying $9.2 million upon termination. This settlement was recognized as an expense during the nine months ended September 30, 2021. In October 2019, 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 agreements, the Company received from the counterparty interest on the notional amount based on 1 month LIBOR and pays to the counterparty a fixed rate of 1.4275%. This swap effectively converts $65.0 million of variable-rate borrowings to fixed-rate borrowings from July 12, 2021 to January 12, 2024. In May 2021, the Company terminated the swap agreements upon the payoff of the related term loan, paying $1.8 million upon termination. This settlement was recognized as an expense during the nine months ended September 30, 2021. Also in October 2019, 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 1.4265%. This swap effectively converts $35.0 million of variable-rate borrowings to fixed-rate borrowings from September 29, 2020 to January 12, 2024. In May 2021, the Company terminated the swap agreements upon the payoff of the related term loan, paying $1.1 million upon termination. This settlement was recognized as an expense during the nine months ended September 30, 2021. See discussion of the 2028 Senior Unsecured Public Notes and the 2033 Senior Unsecured Public Notes in Note 5 – Debt above. Recognition Companies are required to recognize all derivative instruments as either assets or liabilities at fair value on the balance sheet. The Company recognizes its derivatives within Other Assets, net and Accounts Payable, Accrued Expenses and Other Liabilities on the Condensed Consolidated Balance Sheets. The Company recognizes all changes in fair value for hedging instruments designated and qualifying for cash flow hedge accounting treatment as a component of Other Comprehensive Income (OCI). Amounts reported in accumulated OCI related to currently outstanding interest rate derivatives are recognized as an adjustment to income as interest payments are made on the Company’s variable-rate debt. Realized gains or losses on settled derivative instruments included in accumulated OCI are recognized as an adjustment over the term of the hedged debt transaction. During the next twelve months, the Company estimates that an additional $0.3 million will be reclassified as an increase to interest expense. During 2021, the Company accelerated the reclassification of amounts in accumulated OCI into expense given that the hedged forecasted transactions were no longer likely to occur. During 2021, the Company accelerated a loss of $13.4 million out of OCI into earnings due to missed forecasted transactions associated with terminated swap agreements in connection with the early payoff of the hedged term loans (see Recent Settlements above). 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 1 | ​ | Notional 1
​ | ​ | September 30, | ​ | December 31, | ​ | September 30, | ​ | December 31,
Interest Rate Derivatives |  | 2021 |  | 2020 |  | 2021 |  | 2020
Interest rate swap |  | 3 |  | 16 | ​ | $ | 300,000 | ​ | $ | 505,000
​ 1 Number of Instruments and total Notional disclosed includes all interest rate swap agreements outstanding at the balance sheet date, including forward-starting swaps prior to their effective date. ​ The table below presents the estimated fair value of the Company’s derivative financial instruments, as well as their classification in the Condensed Consolidated Balance Sheets (in thousands). ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Asset Derivatives
​ | ​ | September 30, 2021 | ​ | December 31, 2020
​ |  | Fair Value |  | Fair Value
Derivatives designated as cash flow hedges: |  | ​ |  |  | ​ |
Other Assets, net | ​ | $ | 2,109 | ​ | $ | 2,286
​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Liability Derivatives
​ | ​ | September 30, 2021 | ​ | December 31, 2020
​ |  | Fair Value |  | Fair Value
Derivatives designated as cash flow hedges: |  | ​ |  |  | ​ |
Accounts Payable, Accrued Expenses, and Other Liabilities | ​ | $ | 2,880 | ​ | $ | 16,985
​ The table below presents the effect of the Company’s derivative financial instruments in the Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2021 and 2020 (in thousands). ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Location of | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Derivatives in | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Income/(Loss) | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Cash Flow | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Reclassified from | ​ | Amount of Income/(Loss) | ​ | ​ | ​
​ | ​ | Hedging | ​ | Amount of Income/(Loss) Recognized | ​ | Accumulated OCI | ​ | Reclassified from | ​ | ​ | ​
​ | ​ | Relationships | ​ | in OCI on Derivative | ​ | into Income | ​ | Accumulated OCI into Expense | ​ | ​ | ​
Three Months Ended September 30, |  | ​ |  | 2021 |  | 2020 |  | ​ |  | 2021 |  | 2020 | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Interest rate swaps | ​ | $ | 3,300 | ​ | $ | (3,289) |  | Interest Expense | ​ | $ | 82 | ​ | $ | 1,028 | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Nine Months Ended September 30, | ​ | ​ |  | 2021 |  | 2020 | ​ | ​ |  | 2021 |  | 2020 | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Interest rate swaps | ​ | $ | 15,653 | ​ | $ | (36,667) | ​ | Interest Expense | ​ | $ | 2,529 | ​ | $ | 1,365 | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Loss on extinguishment of debt and settlement of related hedges | ​ | $ | 13,363 | ​ | $ | — | ​ | ​ | ​
​ The Company does not use derivative instruments for trading or other speculative purposes and did not have any other derivative instruments or hedging activities as of September 30, 2021. Credit-Risk-Related Contingent Features The Company has agreements with 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 September 30, 2021, 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 $1.4 million. Although the derivative contracts are subject to master netting arrangements, which serve as credit mitigants to both the Company and its counterparties under certain situations, the Company does not net its derivative fair values or any existing rights or obligations to cash collateral on the Condensed 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 September 30, 2021 and December 31, 2020. 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 Condensed Consolidated Balance Sheets (in thousands): Offsetting of Derivative Assets as of September 30, 2021 ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | Gross Amounts |  | Net Amounts of | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | Offset in the | ​ | Assets presented | ​ | Gross Amounts Not Offset in the
​ | ​ | Gross Amounts |  | Statement of | ​ | in the Statement | ​ | Statement of Financial Position
​ | ​ | of Recognized | ​ | Financial | ​ | of Financial |  | Financial |  | Cash Collateral | ​ | ​ | ​
​ |  | Assets |  | Position |  | Position |  | Instruments |  | Received |  | Net Amount
Derivatives | ​ | $ | 2,109 | ​ | $ | — | ​ | $ | 2,109 | ​ | $ | (1,451) | ​ | $ | — | ​ | $ | 658
​ Offsetting of Derivative Liabilities as of September 30, 2021 ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Net Amounts of | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ |  | Gross Amounts |  | Liabilities | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ |  | Offset in the |  | presented in the |  | Gross Amounts Not Offset in the
​ |  | Gross Amounts |  | Statement of |  | Statement of |  | Statement of Financial Position
​ |  | of Recognized |  | Financial |  | Financial |  | Financial |  | Cash Collateral | ​ | ​ | ​
​ |  | Liabilities |  | Position |  | Position |  | Instruments |  | Posted |  | Net Amount
Derivatives | ​ | $ | 2,880 | ​ | $ | — | ​ | $ | 2,880 | ​ | $ | (1,451) | ​ | $ | — | ​ | $ | 1,429
​ Offsetting of Derivative Assets as of December 31, 2020 ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | Gross Amounts | ​ | Net Amounts of | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ |  | Offset in the |  | Assets presented |  | Gross Amounts Not Offset in the
​ |  | Gross Amounts |  | Statement of |  | in the Statement |  | Statement of Financial Position
​ |  | of Recognized |  | Financial |  | of Financial |  | Financial |  | Cash Collateral | ​ | ​ | ​
​ |  | Assets |  | Position |  | Position |  | Instruments |  | Received |  | Net Amount
Derivatives | ​ | $ | 2,286 | ​ | $ | — | ​ | $ | 2,286 | ​ | $ | (1,258) | ​ | $ | — | ​ | $ | 1,028
​ Offsetting of Derivative Liabilities as of December 31, 2020 ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Net Amounts of | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ |  | Gross Amounts |  | Liabilities | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ |  | Offset in the |  | presented in the |  | Gross Amounts Not Offset in the
​ |  | Gross Amounts |  | Statement of |  | Statement of |  | Statement of Financial Position
​ |  | of Recognized |  | Financial |  | Financial |  | Financial |  | Cash Collateral | ​ | ​ | ​
​ |  | Liabilities |  | Position |  | Position |  | Instruments |  | Posted |  | Net Amount
Derivatives | ​ | $ | 16,985 | ​ | $ | — | ​ | $ | 16,985 | ​ | $ | (1,258) | ​ | $ | — | ​ | $ | 15,727
​

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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