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INTEREST RATE SWAP AGREEMENTS
 3 Months Ended
Mar. 31, 2014
INTEREST RATE SWAP AGREEMENTS  
INTEREST RATE SWAP AGREEMENTS

11 - INTEREST RATE SWAP AGREEMENTS

 

As of March 31, 2014 and December 31, 2013, the Company had one and four interest rate swap agreements outstanding, respectively, with DnB NOR Bank to manage interest costs and the risk associated with variable interest rates related to the Company’s 2007 Credit Facility. The total notional principal amount of the swaps at March 31, 2014 and December 31, 2013 was $106,233 and $306,233, respectively, and the swaps have specified rates and durations.

 

The following table summarizes the interest rate swaps designated as cash flow hedges that were in place as of March 31, 2014 and December 31, 2013:

 

 

 

 

 

 

 

 

 

March 31, 2014

 

December 31,
2013

 

Interest Rate Swap Detail

 

Notional

 

Notional

 

Trade

 

Fixed

 

Start Date

 

End date

 

Amount

 

Amount

 

Date

 

Rate

 

of Swap

 

of Swap

 

Outstanding

 

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

 

1/9/09

 

2.05

%

1/22/09

 

1/22/14

 

—

 

100,000

 

2/11/09

 

2.45

%

2/23/09

 

2/23/14

 

—

 

50,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

106,233

 

$

306,233

 

 

The following table summarizes the derivative asset and liability balances at March 31, 2014 and December 31, 2013:

 

 

 

Asset Derivatives

 

Liability Derivatives

 

 

 

Balance

 

Fair Value

 

Balance

 

Fair Value

 

 

 

Sheet
Location

 

March 31,
2014

 

December
31, 2013

 

Sheet
Location

 

March 31,
2014

 

December
31, 2013

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

Fair value of derivative instruments (Current Assets)

 

$

—

 

$

—

 

Fair value of derivative instruments (Current Liabilities)

 

$

5,747

 

$

6,975

 

Interest rate contracts

 

Fair value of derivative instruments (Noncurrent Assets)

 

—

 

—

 

Fair value of derivative instruments (Noncurrent Liabilities)

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total derivatives designated as hedging instruments

 

 

 

—

 

—

 

 

 

5,747

 

6,975

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Derivatives

 

 

 

$

—

 

$

—

 

 

 

$

5,747

 

$

6,975

 

 

The differentials to be paid or received for these swap agreements are recognized as an adjustment to interest expense as incurred.  The Company utilized cash flow hedge accounting for these swaps through March 31, 2014, whereby the effective portion of the change in the 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.  On March 31, 2014, the cash flow hedge accounting on the remaining swap agreement was discontinued.  After March 31, 2014, changes in the valuation of the swap agreement will be reflected as a component of other (expense) income.

 

Refer to Note 1 — General Information for additional information regarding defaults relating to the swap. As of March 31, 2014, the Company is in default under covenants of its 2007 Credit Facility due to the default on the scheduled debt amortization payment due on March 31, 2014.  The default under the 2007 Credit Facility requires the Company to elect interest periods of only one-month, therefore the Company no longer qualifies for hedge accounting under the original designation and hedge accounting has been terminated effective March 31, 2014.  As such, in accordance with applicable accounting guidance, the Company has classified the liability related to this interest rate swap as a current liability in its condensed consolidated balance sheet as of March 31, 2014. If the swap agreement is at any time settled, the Company will be required to release any remaining AOCI associated with the swap agreement to interest expense.

 

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

 

The Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations

For the Three-Month Period Ended March 31, 2014

 

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

 

2014

 

Portion)

 

2014

 

Portion)

 

2014

 

Interest rate contracts

 

$

(179

)

Interest Expense

 

$

(1,407

)

Other Income (Expense)

 

$

—

 

 

 

 

 

The Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations

For the Three-Month Period Ended March 31, 2013

 

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

 

2013

 

Portion)

 

2013

 

Portion)

 

2013

 

Interest rate contracts

 

$

(138

)

Interest Expense

 

$

(2,439

)

Other Income (Expense)

 

$

(4

)

 

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 March 31, 2014, the Company’s 35 vessels mortgaged under the 2007 Credit Facility served as collateral in the aggregate amount of $100,000.