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Derivatives

9 Months Ended

Sep. 30, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

17. Derivatives

We are exposed to market risks associated with changes in the variable interest rate of our Credit Facility. We use derivative instruments to manage our exposure to fluctuations in this variable interest rate and thereby minimize the risks and costs associated with financial activities. We do not use derivative instruments for trading or other speculative purposes.

As of September 30, 2021, we had $300.0 million notional value of interest rate swaps outstanding, which expire in March 2022 and were entered into to offset changes in expected cash flows due to fluctuations in the associated variable interest rates. The counterparties to these derivative agreements are major financial institutions. We monitor the credit quality of these financial institutions and do not expect nonperformance by any counterparty, although such nonperformance could have an adverse effect on us. We have no collateral posted for our derivative instruments.

During the three months ended September 30, 2021, we dedesignated $125.0 million notional value of our interest rate swaps. The fair value of this interest rate swap immediately prior to dedesignation was a liability of $1.6 million. The associated amount in accumulated other comprehensive loss related to this interest rate swap is being amortized into interest expense over the remaining term of the swap through March 2022. Future changes in the fair value of the dedesignated interest rate swap will be recorded in interest expense.

The remaining $175.0 million notional value of our interest rate swaps continue to be designated as cash flow hedging instruments. Changes in the fair value of cash flow hedging instruments are recognized as a component of other comprehensive income (loss) until the hedged transaction affects earnings. At that time, amounts are reclassified into earnings to interest expense, the same statement of operations line item to which the earnings effect of the hedged item is recorded. Cash flows from derivatives designated as hedges are classified in our condensed consolidated statements of cash flows under the same category as the cash flows from the underlying assets, liabilities or anticipated transactions unless the derivative contract contains a significant financing element, in which case, the cash settlements for these derivatives are classified as cash flows from financing activities.

We expect the hedging relationship to be highly effective as the interest rate swap terms substantially coincide with the hedged item and are expected to offset changes in expected cash flows due to fluctuations in the variable rate. We estimate that $2.6 million of the deferred pre-tax loss attributable to interest rate swaps included in accumulated other comprehensive loss at September 30, 2021 will be reclassified into earnings as interest expense at then-current values during the next 12 months as the underlying hedged transactions occur.

As of September 30, 2021, the weighted average effective fixed interest rate of our interest rate swaps was 1.8%.

The following table presents the effect of our derivative instruments on our condensed consolidated balance sheets:


(in thousands)		September 30, 2021			December 31, 2020
Interest rate swaps designated as cash flow hedging instruments
Accrued liabilities		$	1,502		$	4,810
Other liabilities			—			1,527
Total derivatives designated as cash flow hedging instruments			1,502			6,337

Interest rate swaps not designated as hedging instruments
Accrued liabilities			1,079			—

Total derivative liabilities		$	2,581		$	6,337

The following table presents the effect of our derivative instruments on our condensed consolidated statements of operations:


		Three Months Ended						Nine Months Ended
		September 30,						September 30,
(in thousands)		2021			2020			2021			2020
Total amount of interest expense in which the effects of cash flow hedges and undesignated interest rate swaps are recorded		$	25,508		$	25,221		$	82,711		$	80,664

Interest rate swaps designated as cash flow hedging instruments
Pre-tax loss recognized in other comprehensive income (loss)		$	(581)		$	(87)		$	(670)		$	(8,399)
Pre-tax loss reclassified from accumulated other comprehensive loss into interest expense			(1,867)			(1,271)			(4,440)			(2,594)

Interest rate swaps not designated as hedging instruments
Gain recognized in interest expense		$	532		$	—		$	532		$	—

See Note 10 (“Accumulated Other Comprehensive Loss”) and Note 18 (“Fair Value Measurements”) for further details on our derivative instruments.