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Derivative Instruments and Hedging Activities | 6 Months Ended
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Jun. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments and Hedging Activities | 9. Derivative Instruments and Hedging Activities We are exposed to interest rate risk on our variable rate borrowings. We currently use interest rate caps to manage our exposure to interest rate changes, and have designated these interest rate caps as cash flow hedges for accounting purposes. Accordingly, the earnings impact of the derivatives designated as cash flow hedges is recorded upon the recognition of the variable interest payments related to the hedged debt. In May 2021, we purchased interest rate caps with an aggregate notional amount of $650.0 million for $8.6 million. The cost of the interest rate caps will be amortized to interest expense using the caplet method, from the effective date through termination date. We receive payments in the amount calculated pursuant to the caps for any period in which the daily compounded SOFR rate plus a credit spread adjustment recommended by the Alternative Reference Rate Committee of 0.26% increases beyond the applicable strike rate. The notional amounts of the interest rate caps periodically decrease over the life of the caps. The notional amounts, strike rates and end dates of the cap agreements are as follows (notional amounts in thousands):
Start Date |  | End Date |  | Notional Amounts |  |  | Strike Rate |
7/31/2021 |  | 7/30/2023 |  | $ | 650,000 |  |  |  | 0.75 | %
7/31/2023 |  | 7/30/2024 |  |  | 525,000 |  |  |  | 0.75 | %
7/31/2024 |  | 7/30/2025 |  |  | 350,000 |  |  |  | 1.25 | %
7/31/2025 |  | 7/30/2026 |  |  | 250,000 |  |  |  | 2.25 | %
7/31/2026 |  | 7/30/2027 |  |  | 200,000 |  |  |  | 2.75 | %
We record the effective portion of changes in the fair value of our cash flow hedges to other comprehensive income (loss), net of tax, and subsequently reclassify these amounts into earnings in the period during which the hedged transaction is recognized. The amounts included in accumulated other comprehensive income (loss) will be reclassified to interest expense in the event the hedges are no longer considered effective, in accordance with ASC 815, Derivatives and Hedging. No gains or losses of our cash flow hedges were considered to be ineffective and reclassified from other comprehensive income (loss) to earnings for the three- and six-month periods ended June 30, 2024. For the three- and six-month periods ended June 30, 2023, approximately $0.2 million in net unrealized gains from our cash flow hedges were considered to be ineffective and reclassified from other comprehensive income (loss) to earnings. The ineffective portion was the result of a voluntary partial de-designation of the hedge relationship related to a prepayment of our existing variable-rate debt discussed in Note 8, “Long-Term Debt and Other Liabilities.” We estimate that approximately $2.5 million currently recorded in accumulated other comprehensive income (loss) will be recognized in earnings over the next 12 months. We assess the effectiveness of the hedges on an ongoing basis, and the remaining outstanding caps are still considered to be highly effective, and remain designated as a cash flow hedge. Cash flows from interest rate caps are classified in the Unaudited Condensed Consolidated Statements of Cash Flows as investing activities. For the three-month period ended June 30, 2024, we recorded a decrease in fair value on the interest rate caps of $3.5 million, net of tax of $0.9 million, and for the six-month period ended June 30, 2024, we recorded a decrease in fair value on the interest rate caps of $4.9 million, net of tax of $1.2 million. For the three-month period ended June 30, 2023, we recorded an increase in fair value on the interest rate caps of $1.8 million, net of tax of $0.7 million and for the six-month period ended June 30, 2023, we recorded a decrease in fair value on the interest rate caps of $5.5 million, net of tax of $1.7 million. Increases and decreases in fair value on interest rate caps above exclude amortization of the purchase price paid for the interest rate caps. When derivatives are used, we are exposed to credit loss in the event of non-performance by the counterparties; however, non-performance is not anticipated. ASC 815, Derivatives and Hedging, requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet. The fair values of the interest rate derivatives are based on quoted market prices for similar instruments from commercial banks (based on significant observable inputs - Level 2 inputs). The following table presents the fair value of our interest rate derivatives included in the Unaudited Condensed Consolidated Balance Sheets for the periods presented (in thousands):
|  |  |  | June 30, |  |  | December 31, |
Derivatives designated as hedging instruments |  | Balance sheet location |  | 2024 |  |  | 2023 |
Current portion of interest rate caps |  | Prepaid expenses and other current assets |  | $ | 14,543 |  |  | $ | 18,801 |
Non-current portion of interest rate caps |  | Other non-current assets |  | $ | 8,440 |  |  | $ | 10,295 |
Fair Value Measurement Our derivative assets and liabilities consist principally of interest rate caps, which are carried at fair value based on significant observable inputs (Level 2 inputs). Derivatives entered into by us are typically executed over-the-counter and are valued using discounted cash flows along with fair value models that primarily use market observable inputs. These models take into account a variety of factors including, where applicable, maturity, interest rate yield curves, and counterparty credit risks.

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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://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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