Derivative Instruments

3 Months Ended

Mar. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]


7. Derivative Instruments

We generally use derivative instruments to manage our interest rate and foreign currency exchange risk. We currently have derivatives classified as cash flow hedges and net investment hedges. We do not enter into any derivatives for trading or speculative purposes.

All of our derivative instruments are governed by International Swap Dealers Association, Inc. master agreements with our counterparties. As of March 31, 2023 and December 31, 2022, we have presented the fair value of our derivative instruments at the gross amounts in the condensed consolidated balance sheet as the gross fair values of our derivative instruments equaled their net fair values.

Cash flow hedges

We have entered into interest rate swap agreements, which effectively convert portions of our variable rate debt under the 2020 Credit Facility to a fixed rate for the term of the swap agreements. We designated each of the interest rate swaps as cash flow hedges at the inception of the contracts. As of March 31, 2023 and December 31, 2022, the aggregate notional values of the interest rate swaps were $935.0 million and $435.0 million, respectively. All of the contracts have maturities on or before October 2028.

We have entered into foreign currency forward contracts to hedge revenues denominated in the Canadian Dollar ("CAD") against changes in the exchange rate with the United States Dollar ("USD"). We designated each of the forwards as cash flow hedges at the inception of the contracts. As of March 31, 2023 and December 31, 2022, the aggregate notional values of the foreign currency forward contracts designated as cash flow hedges that we held to buy USD in exchange for Canadian Dollars were $27.7 million CAD and $22.6 million CAD, respectively. All of the contracts have maturities of 12 months or less.

Net investment hedges

We have entered into foreign currency forward contracts to hedge a portion of the foreign currency exposure that arises on translation of our investments denominated in British Pounds ("GBP") into USD. We designated each of these foreign currency forward contracts as net investment hedges at the inception of the contracts. As of March 31, 2023 and December 31, 2022, we had £14.0 million and £11.2 million, respectively, of foreign currency forward contracts designated as net investment hedges to reduce the volatility of the U.S. dollar value of a portion of our GBP-denominated investments.

The fair values of our derivative instruments were as follows as of:


		Asset derivatives					Liability derivatives
(dollars in thousands)	Balance sheet location	March 31, 2023		December 31, 2022		Balance sheet location	March 31, 2023		December 31, 2022
Derivative instruments designated as hedging instruments:
Foreign currency forward contracts, current portion	Prepaid expenses and other current assets	$	96	$	247	Accrued expenses and other current liabilities	$	499	$	323
Interest rate swaps, long-term	Other assets	26,514		31,870		Other liabilities	8,920		—
Total derivative instruments designated as hedging instruments		$	26,610	$	32,117		$	9,419	$	323

The effects of derivative instruments in cash flow and net investment hedging relationships were as follows:


	Gain (loss) recognized in accumulated other comprehensive income as of		Location of gain (loss) reclassified from accumulated other comprehensive income into loss	Gain (loss) reclassified from accumulated other comprehensive income into loss
(dollars in thousands)	March 31, 2023			Three months ended March 31, 2023
Cash Flow Hedges
Interest rate swaps	$	17,594	Interest expense	$	4,499
Foreign currency forward contracts	$	14	Revenue	$	125
Net Investment Hedges
Foreign currency forward contracts	$	(417)		$	—

	March 31, 2022			Three months ended March 31, 2022
Cash Flow Hedges
Interest rate swaps	$	21,947	Interest expense	$	(358)

Our policy requires that derivatives used for hedging purposes be designated and effective as a hedge of the identified risk exposure at the inception of the contract. Accumulated other comprehensive income (loss) includes unrealized gains or losses from the change in fair value measurement of our derivative instruments each reporting period and the related income tax expense or benefit. Excluding net investment hedges, changes in the fair value measurements of the derivative instruments and the related income tax expense or benefit are reflected as adjustments to accumulated other comprehensive income (loss) until the actual hedged expense is incurred or until the hedge is terminated at which point the unrealized gain (loss) and related tax effects are reclassified from accumulated other comprehensive income (loss) to current earnings. For net investment hedges, changes in the fair value measurements of the derivative instruments and the related income tax expense or benefit are reflected as adjustments to translation adjustment, a component of accumulated other comprehensive income (loss), and recognized in earnings only when the hedged GBP investment is liquidated. The estimated accumulated other comprehensive income as of March 31, 2023 that is expected to be reclassified into earnings within the next twelve months is

$18.6 million. There were no ineffective portions of our interest rate swap or foreign currency forward derivatives during the three months ended March 31, 2023 and 2022. See Note 10 to these condensed consolidated financial statements for a summary of the changes in accumulated other comprehensive income (loss) by component. We classify cash flows related to derivative instruments as operating activities in the condensed consolidated statements of cash flows.