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INTEREST RATE SWAP AGREEMENTS
 3 Months Ended
Mar. 31, 2015
INTEREST RATE SWAP AGREEMENTS  
INTEREST RATE SWAP AGREEMENTS

11 - INTEREST RATE SWAP AGREEMENTS

 

As of March 31, 2014, the Company had one interest rate swap agreement outstanding with DNB Bank ASA to manage interest costs and risk associated with variable interest rates related to the Company’s 2007 Credit Facility.  The notional amount of the swap was $106,233.  As of March 31, 2014, the Company was in default under covenants of its 2007 Credit Facility due to the default on the schedule debt amortization payment due on March 31, 2014.  The default under the 2007 Credit Facility required the Company to elect interest periods of only one-month, therefore the Company no longer qualified for hedge accounting under the original designation and hedge accounting was terminated effective March 31, 2014.  Additionally, the filing of the Chapter 11 Cases by the Company on the Petition Date constituted an event of default with respect to the outstanding interest rate swap with DNB Bank ASA.  As a result, DNB Bank ASA terminated all transactions under the remaining swap agreement effective April 30, 2014 and filed a secured claim with the Bankruptcy Court of $5,622.  The claim was paid to DNB Bank ASA by the Successor Company during the period from July 9 to September 30, 2014.

 

As of March 31, 2015 and December 31, 2014 the Company did not have any interest rate swap agreements.

 

The differentials to be paid or received for these swap agreements were 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 income (expense).  On March 31, 2014, the cash flow hedge accounting on the remaining swap agreement was discontinued.  Once cash flow hedge accounting was discontinued, the changes in the fair value of the interest rate swaps were recorded in the Condensed Consolidated Statement of Operations in Interest expense and the remaining amounts included in AOCI were amortized to Interest expense over the original term of the hedging relationship for the Predecessor Company.

 

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

Predecessor Company

 

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 Company was required to provide collateral in the form of vessel assets to support the interest rate swap agreements, excluding vessel assets of Baltic Trading.  Prior to the termination of the 2007 Credit Facility on the Effective Date, the Company’s 35 vessels mortgaged under the 2007 Credit Facility served as collateral in the aggregate amount of $100,000.