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Derivatives and Hedging Activities
 6 Months Ended
Jun. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Hedging Activities Derivatives and Hedging Activities
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. During 2021 and 2020, such derivatives have been used to hedge the variable cash flows associated with existing variable-rate debt.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income ("OCI") and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings, as documented at hedge inception in accordance with the Company’s accounting policy election. Amounts reported in accumulated OCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. Over the next 12 months, the Company estimates that an additional $25.8 million will be reclassified as an increase to interest expense.
In May 2021, the Company entered into additional interest rate swap agreements to match the terms of the New Term Loan and effectively extend the termination date to March 31, 2025. As of June 30, 2021, the Company had nine interest rate swaps with a total net hedged notional amount of $1.2 billion. Of the nine interest rate swaps, three are pay-fixed, receive 1 mo. LIBOR (subject to a minimum of 0.75%) interest rate swaps designated in cash flow hedging relationships with a total notional amount of $1.2 billion and a termination date of March 31, 2025. The remaining six interest rate swaps are undesignated and consist of three pay-fixed, receive 1 mo. LIBOR (subject to a minimum of 1.00%) interest rate swaps and three pay 1 mo. LIBOR (subject to a minimum of 1.00%), receive-fixed interest rate swaps with a termination date of November 30, 2023. The pay-floating, receive-fixed swaps are designed to economically offset the undesignated pay-fixed, receive-floating swaps.
Concurrently with the May 2021 transactions, the four previously existing interest rate swap positions were amended, de-designated or terminated and replaced with the new interest rate swaps discussed above. The Company voluntarily de-designated an aggregate notional amount of $435 million (the effects of which are offset by the pay-floating, receive-fixed interest rate swaps) and terminated an aggregate notional amount of $435 million. No cash was exchanged between the Company and the counterparties due to the transactions described above, therefore the non-cash transactions had no impact on the condensed consolidated statements of cash flows. The amount of unrealized losses recorded in OCI related to the de-designated and terminated notional amounts at the time of the de-designation and termination was $55.0 million. This amount will be amortized to interest expense over the remaining term of the original interest rate swaps. The liability of the de-designated and terminated notional amounts was blended into the fixed rate of the new pay-fixed interest rate swaps.
The pay-fixed, receive floating interest rate swaps entered into in May 2021 did not meet the requirements to be considered derivatives in their entirety as a result of the financing component. Accordingly, the swaps are considered hybrid instruments, consisting of a financing element treated as a debt instrument and an embedded at-market derivative that was designated as a cash flow hedge.
Within the Company’s condensed consolidated balance sheets, the financing elements treated as debt instruments described above are carried at amortized cost and the embedded at-market derivatives and the undesignated swaps are recorded at fair value. The cash flows related to the portion treated as debt are classified as financing activities in the condensed consolidated statements of cash flows while the
portion treated as an at-market derivative are classified as operating activities. Cash settlements related to the undesignated swaps will offset and are classified as operating activities in the condensed consolidated cash flows.
The key terms of interest rate swaps outstanding are presented below:
June 30, 2021December 31, 2020
DescriptionEffective DateNotional Amount (in millions)StatusNotional Amount (in millions)StatusMaturity Date
Pay-fixed swapMay 7, 2021$435.0 Active$— NAMarch 31, 2025
Pay-fixed swapMay 7, 2021330.0 Active— NAMarch 31, 2025
Pay-fixed swapMay 7, 2021435.0 Active— NAMarch 31, 2025
Pay-fixed swapNovember 30, 2018165.0 Active— NANovember 30, 2023
Pay-fixed swapNovember 30, 2018120.0 Active— NANovember 30, 2023
Pay-fixed swapJune 28, 2019150.0 Active— NANovember 30, 2023
Receive-fixed swapApril 30, 2021(165.0)Active— NANovember 30, 2023
Receive-fixed swapApril 30, 2021(120.0)Active— NANovember 30, 2023
Receive-fixed swapApril 30, 2021(150.0)Active— NANovember 30, 2023
Pay-fixed swapNovember 30, 2018— Terminated330.0 ActiveNovember 30, 2023
Pay-fixed swapNovember 30, 2018— Terminated330.0 ActiveNovember 30, 2023
Pay-fixed swapNovember 30, 2018— Terminated240.0 ActiveNovember 30, 2023
Pay-fixed swapJune 28, 2019— Terminated300.0 ActiveNovember 30, 2023
$1,200.0 $1,200.0 
Our interest rate swap agreements, excluding the portion treated as debt, are recognized at fair value in the condensed consolidated balance sheets and are valued using pricing models that rely on market observable inputs such as yield curve data, which are classified as Level 2 inputs within the fair value hierarchy.
The following table presents the the fair values of our derivatives and their location on the condensed consolidated balance sheets (in millions):
June 30, 2021December 31, 2020
LocationAssetsLiabilitiesAssetsLiabilities
Derivatives not designated as hedging instruments
Interest rate swapsOther long-term assets$17.6 $— $— $— 
Interest rate swapsOther long-term liabilities— 17.3 — — 
Derivatives in cash flow hedging relationships
Interest rate swaps
Other long-term liabilities (1)
— 55.5 — 61.0 
Total$17.6 $72.8 $— $61.0 
(1)The balance as of June 30, 2021 includes $52.9 million related to the financing component of the pay-fixed, receive floating interest rate swaps.
The following table presents the pre-tax effect of the interest rate swaps on the Company's accumulated OCI and condensed consolidated statement of operations (in millions):
Three Months Ended June 30,Six Months Ended June 30,
Location2021202020212020
Derivatives not designated as hedging instruments
Gain recognized in incomeOther income$0.2 $— $0.2 $— 
Derivatives in cash flow hedging relationships
Loss (gain) recognized in OCI (effective portion)$5.8 $(1.7)$4.9 $26.9 
Loss reclassified from accumulated OCI into income (effective portion) (1)
Interest expense, net$6.0 $5.6 $11.5 $9.0 
(1)Includes amortization of accumulated OCI related to de-designated and terminated interest rate swaps of $3.2 million for the three and six months ended June 30, 2021.