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Derivatives
 6 Months Ended
Jun. 30, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives

18. Derivatives:

 

(a) Interest rate swaps that meet the criteria for hedge accounting: The Company, according to its long-term strategic plan to maintain stability in its interest rate exposure, has decided to minimize its exposure to floating interest rates by entering into interest rate swap agreements. To this effect, the Company has entered into interest rate swap transactions with varying start and maturity dates, in order to manage its floating rate exposure.

 

These interest rate swaps are designed to hedge the variability of interest cash flows arising from floating rate debt, attributable to movements in three-month or six-month USD LIBOR. According to the Company’s Risk Management Accounting Policy, after putting in place the formal documentation required by ASC 815 in order to designate these swaps as hedging instruments as from their inception, these interest rate swaps qualified for hedge accounting. Accordingly, only hedge ineffectiveness amounts arising from the differences in the change in fair value of the hedging instrument and the hedged item are recognized in the Company’s earnings. Assessment and measurement of the effectiveness of these interest rate swaps are performed at each reporting period. For qualifying cash flow hedges, the fair value gain or loss associated with the effective portion of the cash flow hedge is recognized initially in “Other comprehensive income” and recognized to the consolidated statement of income in the periods when the hedged item affects profit or loss. Any ineffective portion of the gain or loss on the hedging instrument is recognized in the consolidated statement of income immediately.

 

At December 31, 2014 and June 30, 2015, the Company had interest rate swap agreements with an outstanding notional amount of $1,030,642 and $968,135, respectively. The fair value of these interest rate swaps outstanding at December 31, 2014 and June 30, 2015, amounted to a liability of $55,422 and a liability of $49,436, respectively and these are included in the accompanying consolidated balance sheets. The maturity of these interest rate swaps range between June 2018 and January 2021.

 

During the six-month periods ended June 30, 2014 and 2015, the realized ineffectiveness on the interest rate swaps discussed under (a) above was a loss of $121 and a loss of $60, respectively and are included in Gain on derivative instruments, net in the accompanying consolidated statements of income.

 

During the six-month period ended June 30, 2014, the Company terminated three interest rate derivative instruments and paid the counterparty breakage costs of $10,192 in aggregate and is reflected in the Swaps breakage costs in the accompanying 2014 consolidated statement of income.

 

The estimated net amount that is expected to be reclassified within the next 12 months from Accumulated Other Comprehensive Loss to earnings in respect of the settlements on interest rate swaps amounts to $27,181.

 

(b) Interest rate swaps that do not meet the criteria for hedge accounting: As of December 31, 2014 and June 30, 2015, the Company had interest rate swap agreements with an outstanding notional amount of $217,533 and $212,486, respectively for the purpose of managing risks associated with the variability of changing LIBOR-related interest rates. Such agreements did not meet hedge accounting criteria and, therefore, changes in its fair value are reflected in earnings. The fair value of these interest rate swaps at December 31, 2014 and June 30, 2015, was a liability of $18,509 and a liability of $16,149, respectively and these are included in Fair value of derivatives in the accompanying consolidated balance sheets. The maturity of these interest rate swaps range between February 2017 and August 2020.

 

(c) Foreign currency agreements: As of June 30, 2015, the Company was engaged in sixteen Euro/U.S. dollar forward agreements totaling $23,000 at an average forward rate of Euro/U.S. dollar 1.112 expiring in monthly intervals up to February 2016.

 

As of December 31, 2014, the Company was engaged in nine Euro/U.S. dollar forward agreements totaling $22,500 at an average forward rate of Euro/U.S. dollar 1.273 expiring in monthly intervals up to September 2015.

 

The total change of forward contracts fair value for the six-month period ended June 30, 2015, was a loss of $519 ($nil for the six-month period ended June 30, 2014) and is included in Gain on derivative instruments, net in the accompanying 2015 consolidated statement of income.

 

The Effect of Derivative Instruments for the six-month periods ended June 30, 2014 and 2015

 

Derivatives in ASC 815 Cash Flow Hedging Relationships
   

Amount of Gain / (Loss) Recognized in Accumulated OCI on

Derivative

(Effective Portion)

Location of Gain / (Loss)

Recognized in Income on

  

Amount of Gain / (Loss)

Recognized in Income on Derivative

(Ineffective Portion)

      2014       2015   Derivative (Ineffective Portion)   2014   2015
Interest rate swaps     (8,862)       (15,574)   Gain on derivative instruments, net   (121)   (60)
Reclassification to Interest and finance costs     21,596       17,777        -   -
Total     12,734       2,203       (121)   (60)

 

Derivatives Not Designated as Hedging Instruments

and ineffectiveness of Hedging Instruments under ASC 815

 

Location of Gain / (Loss)

Recognized in Income on Derivative

    

Amount of Gain / (Loss)

Recognized in Income on Derivative

        2014   2015
Non hedging interest rate swaps Gain on derivative instruments, net     2,022   11,464
Ineffective portion of hedging interest rate swaps Gain on derivative instruments, net     (121)   (60)
Forward contracts Gain on derivative instruments, net     -   519
Total       1,901   11,923