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Derivatives and Hedging Activities | 9 Months Ended
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Sep. 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 and interest rate caps 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 $26.3 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 September 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-Month 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-Month LIBOR (subject to a minimum of 1.00%) interest rate swaps and three pay 1-Month 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. In September 2021, the Company entered into interest rate cap agreements to more effectively hedge the interest rate risk. As of September 30, 2021, the Company had two interest rate caps with a total hedged notional amount of $337.5 million, and each has a termination date of March 31, 2025. Within the Company’s condensed consolidated balance sheets, the interest rate caps are recorded at fair value. The cash flows related to the interest rate caps are classified as operating activities in the condensed consolidated statements of cash flows. The key terms of interest rate swaps and interest rate caps outstanding are presented below:
|  |  |  | September 30, 2021 |  | December 31, 2020 |  |
Description |  | Effective Date |  | Notional Amount (in millions) |  | Status |  | Notional Amount (in millions) |  | Status |  | Maturity Date
Pay-fixed swap |  | May 7, 2021 |  | $ | 435.0 |  |  | Active |  | $ | — |  |  | NA |  | March 31, 2025
Pay-fixed swap |  | May 7, 2021 |  | 330.0 |  |  | Active |  | — |  |  | NA |  | March 31, 2025
Pay-fixed swap |  | May 7, 2021 |  | 435.0 |  |  | Active |  | — |  |  | NA |  | March 31, 2025
Interest rate cap |  | September 30, 2021 |  | 168.8 |  |  | Active |  | — |  |  | NA |  | March 31, 2025
Interest rate cap |  | September 30, 2021 |  | 168.7 |  |  | Active |  | — |  |  | NA |  | March 31, 2025
Pay-fixed swap |  | November 30, 2018 |  | 165.0 |  |  | Active |  | — |  |  | NA |  | November 30, 2023
Pay-fixed swap |  | November 30, 2018 |  | 120.0 |  |  | Active |  | — |  |  | NA |  | November 30, 2023
Pay-fixed swap |  | June 28, 2019 |  | 150.0 |  |  | Active |  | — |  |  | NA |  | November 30, 2023
Receive-fixed swap |  | April 30, 2021 |  | (165.0) |  |  | Active |  | — |  |  | NA |  | November 30, 2023
Receive-fixed swap |  | April 30, 2021 |  | (120.0) |  |  | Active |  | — |  |  | NA |  | November 30, 2023
Receive-fixed swap |  | April 30, 2021 |  | (150.0) |  |  | Active |  | — |  |  | NA |  | November 30, 2023
Pay-fixed swap |  | November 30, 2018 |  | — |  |  | Terminated |  | 330.0 |  |  | Active |  | November 30, 2023
Pay-fixed swap |  | November 30, 2018 |  | — |  |  | Terminated |  | 330.0 |  |  | Active |  | November 30, 2023
Pay-fixed swap |  | November 30, 2018 |  | — |  |  | Terminated |  | 240.0 |  |  | Active |  | November 30, 2023
Pay-fixed swap |  | June 28, 2019 |  | — |  |  | Terminated |  | 300.0 |  |  | Active |  | November 30, 2023
|  |  |  | $ | 1,537.5 |  |  |  |  | $ | 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 fair value of the interest rate caps are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the caps are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. The interest rate caps are classified using Level 2 inputs within the fair value hierarchy. The following table presents the fair values of our derivatives and their location on the condensed consolidated balance sheets (in millions):
|  |  |  | September 30, 2021 |  | December 31, 2020
|  | Location |  | Assets |  | Liabilities |  | Assets |  | Liabilities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | Other long-term assets |  | $ | 15.8 |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Interest rate swaps |  | Other long-term liabilities |  | — |  |  | 15.6 |  |  | — |  |  | — |
Derivatives in cash flow hedging relationships |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | Other long-term liabilities (1) |  | — |  |  | 51.0 |  |  | — |  |  | 61.0 |
Interest rate caps |  | Other long-term assets |  | 1.8 |  |  | — |  |  | — |  |  | — |
Total |  |  |  | $ | 17.6 |  |  | $ | 66.6 |  |  | $ | — |  |  | $ | 61.0 |
(1)The balance as of September 30, 2021 includes $49.4 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 and caps on the Company's accumulated OCI and condensed consolidated statement of operations (in millions):
|  |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
| Location |  | 2021 |  | 2020 |  | 2021 |  | 2020
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |
Gain recognized in income | Other income |  | $ | — |  |  | $ | — |  |  | $ | 0.2 |  |  | $ | — |
Derivatives in cash flow hedging relationships |  |  |  |  |  |  |  |  |
Loss recognized in OCI (effective portion) |  |  | $ | 0.1 |  |  | $ | 2.3 |  |  | $ | 5.0 |  |  | $ | 29.2 |
Loss reclassified from accumulated OCI into income (effective portion) (1) | Interest expense, net |  | $ | 6.6 |  |  | $ | 5.6 |  |  | $ | 18.1 |  |  | $ | 14.6 |
(1)Includes amortization of accumulated OCI related to de-designated and terminated interest rate swaps of $5.4 million and $8.6 million for the three and nine months ended September 30, 2021, respectively.

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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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