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Derivatives and Hedging Activities
 12 Months Ended
Dec. 31, 2023
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 2023 and 2022, such derivatives have been used to hedge the variable cash flows associated with existing variable-rate debt.
The key terms of interest rate swaps and interest rate caps outstanding are presented below:
December 31, 2023December 31, 2022
DescriptionEffective DateNotional Amount (in millions)StatusNotional Amount (in millions)StatusMaturity Date
Pay-fixed swapMay 7, 2021$435.0 Active$435.0 ActiveMarch 31, 2025
Pay-fixed swapMay 7, 2021330.0 Active330.0 ActiveMarch 31, 2025
Pay-fixed swapMay 7, 2021435.0 Active435.0 ActiveMarch 31, 2025
Interest rate capSeptember 30, 2021151.4 Active159.1 ActiveMarch 31, 2025
Interest rate capSeptember 30, 20218.7 Active159.1 ActiveMarch 31, 2025
Pay-fixed swapNovember 30, 2018— Matured165.0 ActiveNovember 30, 2023
Pay-fixed swapNovember 30, 2018— Matured120.0 ActiveNovember 30, 2023
Pay-fixed swapJune 28, 2019— Matured150.0 ActiveNovember 30, 2023
Receive-fixed swapApril 30, 2021— Matured(165.0)ActiveNovember 30, 2023
Receive-fixed swapApril 30, 2021— Matured(120.0)ActiveNovember 30, 2023
Receive-fixed swapApril 30, 2021— Matured(150.0)ActiveNovember 30, 2023
$1,360.1 $1,518.2 
As of December 31, 2023, the Company had three interest rate swaps with a total net notional amount of $1.2 billion. The interest rate swaps are pay-fixed, receive 1-Month SOFR (subject to a minimum of 0.75%) designated in cash flow hedging relationships with a termination date of March 31, 2025.
The six matured interest rate swaps were undesignated and consisted of three pay-fixed, received 1-Month SOFR (subject to a minimum of 1.00%) interest rate swaps and three pay 1-Month SOFR (subject to a minimum of 1.00%), receive-fixed interest rate swaps. The interest rate swaps matured effective November 30, 2023. The pay-floating, receive-fixed swaps were designed to economically offset the undesignated pay-fixed, receive-floating swaps. The Company's interest rate derivative agreements were indexed to LIBOR prior to permanent cessation on June 30, 2023 and automatically transitioned to SOFR in accordance with their respective fallback provisions.
As of December 31, 2023, the Company had two interest rate caps designated in cash flow hedging relationships with a total notional amount of $160.1 million. The interest rate caps each have a termination date of March 31, 2025. In connection with the voluntary prepayment on the 2017 Term Loan in 2022 (see Note 5. "Long-Term Debt), the Company de-designated a portion of one of its interest rate caps. The amount of unrealized gains recorded in other comprehensive income ("OCI") related to the de-designated notional amount at the time of the de-designation was $7.5 million. This amount was reclassified from accumulated OCI into income and is included as a component of other income in the consolidated statement of operations for the year ended December 31, 2022. No cash was exchanged between the Company and the counterparties due to the de-designation, therefore the non-cash transactions had no impact on the consolidated statements of cash flows. During the year ended December 31, 2023, the Company partially terminated the previously de-designated portion of one of its interest rate caps. In connection with the termination, the Company received $8.6 million, which is included as a component of operating activities in the consolidated statements of cash flows for the year ended December 31, 2023.
The pay-fixed, receive floating interest rate swaps 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 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 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 consolidated cash flows. Within the Company’s consolidated balance sheets, the interest rate caps, including the undesignated portion, are recorded at fair value. The cash flows related to the interest rate caps, including the undesignated portion, are classified as operating activities in the consolidated statements of cash flows.
The Company's interest rate swap agreements, excluding the portion treated as debt, are recognized at fair value in the 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.
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 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 $53.8 million will be reclassified as a decrease to interest expense.
The following table presents the fair values of our derivatives and their location on the consolidated balance sheets (in millions):
December 31, 2023December 31, 2022
LocationAssetsLiabilitiesAssetsLiabilities
Derivatives not designated as hedging instruments
Interest rate capsOther long-term assets$— $— $9.0 $— 
Interest rate swapsOther long-term assets— — 8.5 — 
Interest rate swapsOther long-term liabilities— — — 8.5 
Derivatives in cash flow hedging relationships
Interest rate capsOther long-term assets6.0 — 10.4 — 
Interest rate swapsOther long-term assets51.4 — 85.5 — 
Interest rate swaps
Other long-term liabilities (1)
— 17.8 — 31.9 
Total$57.4 $17.8 $113.4 $40.4 
(1)The balance is 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 consolidated statement of operations (in millions):
Year Ended December 31,
Location202320222021
Derivatives not designated as hedging instruments
(Gain) loss recognized in incomeOther income, net$0.6 $(0.4)$(0.1)
Gain reclassified from accumulated OCI into income (1)
Other income, net$— $(7.5)$— 
Derivatives in cash flow hedging relationships
Gain (loss) recognized in OCI (effective portion)$16.0 $104.9 $4.8 
(Gain) loss reclassified from accumulated OCI into income (effective portion) (2)
Interest expense, net$(34.7)$10.3 $24.7 
(1)Gain reclassified from accumulated OCI upon de-desigation of a portion of one of the Company's interest rate caps.
(2)Includes amortization of accumulated OCI related to de-designated and terminated interest rate swaps of $19.6 million, $21.4 million and $14.0 million for the years ended December 31, 2023, 2022 and 2021, respectively.