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Derivative Financial Instruments
 12 Months Ended
Dec. 31, 2016
Derivative Instruments And Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments

 

NOTE 6: Derivative Financial Instruments

We may use derivative financial instruments to hedge all or a portion of the interest rate risk associated with our borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with our operating and financial structure as well as to hedge specific anticipated transactions.  While these instruments may impact our periodic cash flows, they benefit us by minimizing the risks and/or costs previously described.  The counterparties to these contractual arrangements are major financial institutions with which we and our affiliates may also have other financial relationships. In the event of nonperformance by the counterparties, we are potentially exposed to credit loss. However, because of the high credit ratings of the counterparties, we do not anticipate that any of the counterparties will fail to meet their obligations.

Interest Rate Swaps and Caps

We have entered into an interest rate cap contract and an interest rate swap contract to hedge interest rate exposure on floating rate indebtedness.  

On September 30, 2015, we entered into an interest rate cap contract with a notional value of $200 million, a strike rate of 3.0% based on 1-month LIBOR and a maturity date of October 17, 2017.  Through June 23, 2016, this interest rate cap was designated as a cash flow hedge. Through that date, we concluded that this hedging relationship was highly effective in offsetting interest rate fluctuations associated with the identified indebtedness and, using the hypothetical derivative method, did not recognize any ineffectiveness.  On June 24, 2016, this interest rate cap was de-designated and, as of June 30, 2016, this interest rate cap was accounted for as a freestanding derivative.  The change in fair value of this interest cap was $24 for the twelve months ended December 31, 2016.

On June 24, 2016, we entered into an interest rate swap contract with a notional value of $150 million, a strike rate of 1.145% and a maturity date of June 17, 2021.  We designated this interest rate swap as a cash flow hedge at inception and determined that the hedge is highly effective in offsetting interest rate fluctuations associated with the identified indebtedness. We concluded that this hedging relationship was and will continue to be highly effective, and using the hypothetical derivative method, did not recognize any ineffectiveness.  

The following table summarizes the aggregate notional amount and estimated net fair value of our derivative instruments as of December 31, 2016 and December 31, 2015:

 

 

December 31, 2016

 

 

As of December 31, 2015

 

 

 

Notional

 

 

Fair Value of

Assets

 

 

Fair Value of

Liabilities

 

 

Notional

 

 

Fair Value of

Assets

 

 

Fair Value of

Liabilities

 

Cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap

 

$

150,000

 

 

$

3,867

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

Interest rate cap

 

 

 

 

 

 

—

 

 

 

—

 

 

 

200,000

 

 

 

24

 

 

 

—

 

 

 

 

150,000

 

 

 

3,867

 

 

 

—

 

 

 

200,000

 

 

 

24

 

 

 

—

 

Freestanding derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate cap

 

 

200,000

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Net fair value

 

$

350,000

 

 

$

3,867

 

 

$

—

 

 

$

200,000

 

 

$

24

 

 

$

—

 

 

Effective interest rate swaps and caps are reported in accumulated other comprehensive income and the fair value of these hedge agreements is included in other assets or other liabilities.

For interest rate swaps and caps that are considered effective hedges, we reclassified realized losses of $492, $0 and $0 to earnings within interest expense for the twelve months ended December 31, 2016, 2015 & 2014, respectively. For interest rate swaps and caps that are considered effective hedges, we expect $292 to be reclassified out of accumulated other comprehensive income to earnings over the next 12 months.