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Derivative Financial Instruments | 12 Months Ended
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Dec. 31, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | Derivative Financial Instruments Interest Rate Swaps In April 2019, we entered into two interest rate swaps, or initial swaps, to manage cash flow exposure and exposure to interest rate fluctuations under our 2018 Term Loan. The initial swaps would have matured in April 2022. Under the swap agreements, we were required to pay interest at a fixed rate of 2.3% per annum and receive interest at a variable rate indexed to one-month LIBOR. The initial notional amount of each initial swap was $66.0 million. The initial swaps were accounted for as cash flow hedges as the transactions were executed to hedge our future interest payments. Due to the impact of COVID-19 and decreases in LIBOR, in March 2020, we entered into two blend-and-extend transactions to modify our initial swaps where the derivative liability of $12.3 million was carried over to the modified swaps, the fixed rate of 2.3% on the initial swaps was modified to a new average fixed interest rate of 1.7% and the maturity date was extended by two years to April 2024. The notional amount of each modified swap was $96.6 million. At the time of modification, the initial swaps were de-designated as cash flow hedges and amounts in other comprehensive income were frozen and were amortized to interest expense over the life of the original hedge relationship. As the modified swaps were considered off-market, they were accounted for as a debt host, and an embedded at-market derivative was bifurcated from the debt host. The at-market portion of the modified swaps were designated as cash flow hedges. The hybrid debt host was accounted for at amortized cost basis and was amortized as we settled our modified swaps over the extended term with related interest recognized in interest expense, net in the accompanying consolidated statements of operations. At June 30, 2021, the interest rate swap contracts had an aggregate notional amount of $394.2 million, which were designated as cash flow hedges. In July 2021, upon the full repayment of our 2018 Term Loan, our interest rate swaps were discontinued as cash flow hedges and were subsequently extinguished. We paid $13.6 million to extinguish our interest rate swaps and hybrid debt. Upon discontinuance of the interest rate swaps as cash flow hedges, the unrealized losses of $9.2 million for the intervening period were recognized in interest expense, net. There were no interest rate swaps outstanding as of December 31, 2021. Interest Rate Cap In March 2018, we entered into an interest rate cap agreement at a cost of $0.8 million with a three-year term, for an aggregate notional amount of $340.0 million to hedge variability of cash flows in our variable interest payments attributable to fluctuations in LIBOR beyond 3%. The critical terms of the interest rate cap were substantially the same as the underlying term loans. The interest rate cap was accounted for as a cash flow hedge as the transaction was executed to hedge our future interest payments. The interest rate cap expired on March 31, 2021. Other Derivative Instruments We also held an interest rate swap, which was used to manage cash flow exposure and exposure to interest rate fluctuations under our previous credit facilities, or 2016 swap. The 2016 swap matured in January 2020. Under the swap agreement, we were required to pay interest at a fixed rate of 1.8% per annum and we received interest at a variable rate indexed to one-month LIBOR. The initial notional amount of the 2016 swap was $18.3 million. The 2016 swap did not qualify for hedge accounting and changes in fair value were recorded in interest expense, net in the accompanying consolidated statements of operations. Financial Guarantee In September 2019, we provided a financial guarantee relating to a former executive officer upon their voluntary termination. The executive officer entered into a personal loan with a financial institution for $50.0 million with a three-year term. The personal loan was collateralized by personal assets, an investment portfolio and our common stock owned by the former executive officer. We provided a financial guarantee to the financial institution up to $25.0 million had the former executive officer defaulted or not met certain collateral requirements throughout the term of the personal loan. We deposited $25.0 million into a money market fund with the financial institution, or restricted cash equivalent, to evidence this financial guarantee. Had the former executive officer not met certain collateral requirements or defaulted on the personal loan, the financial institution would have had the ability to use our restricted cash equivalent for any shortfall up to $25.0 million. In that event, we would have had full recourse against the former executive officer to recover the amount retained by the financial institution up to $25.0 million. The personal loan was required to be repaid by the former executive officer prior to our making a public filing with the Securities and Exchange Commission for our IPO, or September 2022, whichever came first. In the event of our IPO, the former executive officer had the option to sell up to $25.0 million of his common stock back to us to pay off the personal loan with the financial institution. The financial guarantee was accounted for as a derivative at fair value with changes in fair value recorded in other income, net in our consolidated statements of operations. The financial guarantee had a term of three years and matured in September 2022. In June 2021, the financial guarantee was terminated and we recognized a gain of $0.1 million from the cancellation of our financial guarantee derivative in other income (expense), net in the accompanying consolidated statements of operations. The associated restricted cash equivalent of $25.0 million became unrestricted and was reclassified to cash and cash equivalents. The estimated fair value of the financial guarantee liability of $0.1 million as of December 31, 2020 and was estimated using a Monte Carlo simulation model using Level 3 inputs from the fair value hierarchy. The principal assumptions used in the model as of December 31, 2020, were: expected volatility of 63% and risk-free rate of 0.1%. The change in fair value of the financial guarantee in 2020 was $1.8 million. Derivative financial instruments and hybrid debt consisted of the following (in thousands):
|  | As of December 31, 2020
Interest rate swaps derivative liability, current portion |  | $ | 2,177 |
Interest rate swaps |  | $ | 3,640 |
Financial guarantee |  | 150 |
Total derivative liability, net of current portion |  | $ | 3,790 |
Hybrid debt, current portion |  | $ | 2,954 |
Hybrid debt, net of current portion |  | $ | 8,152 |
Current and noncurrent derivative liabilities and hybrid debt are included in accrued expenses and other current liabilities and other liabilities, respectively, in the accompanying consolidated balance sheets. The impact from losses from our interest rate cap, interest rate swaps, and hybrid debt in our consolidated statements of operations were as follows (in thousands):
| Year Ended December 31,
| 2021 |  | 2020 |  | 2019
Settlement of interest rate swaps | $ | 1,052 |  | $ | 1,103 |  | $ | 208
Amortization of prior hedge effectiveness | 3,095 |  | 3,481 |  | —
Fair value adjustment of interest rate swap | 364 |  | — |  | 128
Amortization of interest rate cap premium | 28 |  | 194 |  | 312
Interest expense on hybrid debt | 368 |  | 630 |  | —
Discontinuance of interest rate swaps and prior hedge effectiveness | $ | 9,240 |  | $ | — |  | $ | —
Total, recorded in interest expense, net | $ | 14,147 |  | $ | 5,408 |  | $ | 648

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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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