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INTEREST RATE SWAP AGREEMENTS
 12 Months Ended
Dec. 31, 2011
INTEREST RATE SWAP AGREEMENTS  
INTEREST RATE SWAP AGREEMENTS

11 - INTEREST RATE SWAP AGREEMENTS

 

The Company has eight and ten interest rate swap agreements with DnB NOR Bank ASA to manage interest costs and the risk associated with changing interest rates related to the Company’s 2007 Credit Facility, which were outstanding at December 31, 2011 and 2010, respectively.  The total notional principal amount of the swaps at December 31, 2011 and 2010 is $606,233 and $756,233, respectively, and the swaps have specified rates and durations.

 

The following table summarizes the interest rate swaps designated as cash flow hedges that are in place as of December 31, 2011 and 2010:

 

Interest Rate Swap Detail

 

December 31,
2011

 

December 31,
2010

 

Trade
Date

 

Fixed
Rate

 

Start Date
of Swap

 

End date
of Swap

 

Notional
Amount
Outstanding

 

Notional
Amount
Outstanding

 

9/6/05

 

4.485

%

9/14/05

 

7/29/15

 

$

106,233

 

$

106,233

 

3/29/06

 

5.25

%

1/2/07

 

1/1/14

 

50,000

 

50,000

 

3/24/06

 

5.075

%

1/2/08

 

1/2/13

 

50,000

 

50,000

 

7/31/07

 

5.115

%

11/30/07

 

11/30/11

 

—

 

100,000

 

8/9/07

 

5.07

%

1/2/08

 

1/3/12

 

100,000

 

100,000

 

8/16/07

 

4.985

%

3/31/08

 

3/31/12

 

50,000

 

50,000

 

8/16/07

 

5.04

%

3/31/08

 

3/31/12

 

100,000

 

100,000

 

1/22/08

 

2.89

%

2/1/08

 

2/1/11

 

—

 

50,000

 

1/9/09

 

2.05

%

1/22/09

 

1/22/14

 

100,000

 

100,000

 

2/11/09

 

2.45

%

2/23/09

 

2/23/14

 

50,000

 

50,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

606,233

 

$

756,233

 

 

The differentials to be paid or received for these swap agreements are recognized as an adjustment to interest expense as incurred.  The Company is currently utilizing cash flow hedge accounting for these swaps whereby the effective portion of the change in value of the swaps is reflected as a component of AOCI.  The ineffective portion is recognized as other expense, which is a component of other (expense) income.

 

The interest expense pertaining to the interest rate swaps for the years ended December 31, 2011, 2010 and 2009 was $28,854, $30,204 and $28,585, respectively.

 

The swap agreements, with effective dates prior to December 31, 2011, synthetically convert variable rate debt to fixed rate debt at the fixed interest rate of the swap plus the Applicable Margin, as defined in the “2007 Credit Facility” section above in Note 9 — Long-Term Debt.

 

The following table summarizes the derivative asset and liability balances at December 31, 2011 and 2010:

 

 

 

Asset Derivatives

 

Liability Derivatives

 

 

 

Balance

 

Fair Value

 

Balance

 

Fair Value

 

 

 

Sheet
Location

 

December 31,
2011

 

December
31, 2010

 

Sheet
Location

 

December 31,
2011

 

December
31, 2010

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

Fair value of derivative instruments (Current Assets)

 

$

—

 

$

—

 

Fair value of derivative instruments (Current Liabilities)

 

$

1,686

 

$

4,417

 

Interest rate contracts

 

Fair value of derivative instruments (Noncurrent Assets)

 

—

 

—

 

Fair value of derivative instruments (Noncurrent Liabilities)

 

23,654

 

38,880

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total derivatives designated as hedging instruments

 

 

 

$

—

 

$

—

 

 

 

$

25,340

 

$

43,297

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Derivatives

 

 

 

$

—

 

$

—

 

 

 

$

25,340

 

$

43,297

 

 

The following tables present the impact of derivative instruments and their location within the Consolidated Statement of Operations:

 

The Effect of Derivative Instruments on the Consolidated Statement of Operations

For the Year Ended December 31, 2011

 

Derivatives in Cash
Flow Hedging

 

Amount of
Gain (Loss)
Recognized
in AOCI on
Derivative
(Effective
Portion)

 

Location of
Gain (Loss)
Reclassified
from AOCI
into income
(Effective

 

Amount of
Gain (Loss)
Reclassified
from AOCI
into income
(Effective
Portion)

 

Location of
Gain (Loss)
Recognized in
Income on
Derivative
(Ineffective

 

Amount of
Gain (Loss)
Recognized in
Income on
Derivative
(Ineffective
Portion)

 

Relationships

 

2011

 

Portion)

 

2011

 

Portion)

 

2011

 

Interest rate contracts

 

$

(10,947

)

Interest Expense

 

$

(28,854

)

Other Income (Expense)

 

$

51

 

 

The Effect of Derivative Instruments on the Consolidated Statement of Operations

For the Year Ended December 31, 2010

 

Derivatives in Cash
Flow Hedging

 

Amount of
Gain (Loss)
Recognized
in AOCI on
Derivative
(Effective
Portion)

 

Location of
Gain (Loss)
Reclassified
from AOCI
into income
(Effective

 

Amount of
Gain (Loss)
Reclassified
from AOCI
into income
(Effective
Portion)

 

Location of
Gain (Loss)
Recognized in
Income on
Derivative
(Ineffective

 

Amount of
Gain (Loss)
Recognized in
Income on
Derivative
(Ineffective
Portion)

 

Relationships

 

2010

 

Portion)

 

2010

 

Portion)

 

2010

 

Interest rate contracts

 

$

(31,536

)

Interest Expense

 

$

(30,204

)

Other Income (Expense)

 

$

66

 

 

The Effect of Derivative Instruments on the Consolidated Statement of Operations

For the Year Ended December 31, 2009

 

Derivatives in Cash
Flow Hedging

 

Amount of
Gain (Loss)
Recognized
in AOCI on
Derivative
(Effective
Portion)

 

Location of
Gain (Loss)
Reclassified
from AOCI
into income
(Effective

 

Amount of
Gain (Loss)
Reclassified
from AOCI
into income
(Effective
Portion)

 

Location of
Gain (Loss)
Recognized in
Income on
Derivative
(Ineffective

 

Amount of
Gain (Loss)
Recognized in
Income on
Derivative
(Ineffective
Portion)

 

Relationships

 

2009

 

Portion)

 

2009

 

Portion)

 

2009

 

Interest rate contracts

 

$

(4,390

)

Interest Expense

 

$

(28,585

)

Other Income (Expense)

 

$

(288

)

 

At December 31, 2011, ($12,279) of AOCI is expected to be reclassified into interest expense over the next 12 months associated with interest rate swaps.

 

The Company is required to provide collateral in the form of vessel assets to support the interest rate swap agreements, excluding vessel assets of Baltic Trading.  At December 31, 2011, the Company’s 35 vessels mortgaged under the 2007 Credit Facility served as collateral in the aggregate amount of $100,000.