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DERIVATIVE INSTRUMENTS

3 Months Ended

Mar. 31, 2023

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

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8 – DERIVATIVE INSTRUMENTS

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The Company is exposed to interest rate risk on its floating rate debt. As of March 31, 2023, the Company had two interest rate cap agreements outstanding to manage interest costs and the risk associated with variable interest rates. The two interest rate cap agreements were initially designated and qualified as cash flow hedges. The premium paid is recognized in income on a rational basis, and all changes in the value of the caps are deferred in Accumulated other comprehensive income (“AOCI”) and are subsequently reclassified into Interest expense in the period when the hedged interest affects earnings. One of our $50,000 interest rate cap agreements expired on March 10, 2023.

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During the second quarter of 2022, based on the total outstanding debt under the $450 Million Credit Facility being below the total notional amount of the interest rate cap agreements, a portion of one of the interest rate cap agreements was dedesignated as a hedge. Subsequent gains and losses resulting from valuation adjustments on the dedesignated portion of the cap are recorded within interest expense. As the forecasted interest payments hedged are not remote of occurring, the amounts in AOCI as of the date of dedesignation will be recognized over the remaining original hedge period. During the three months ended March 31, 2023, the Company recorded a loss of $20 in interest expense for the portion of the interest rate caps not designated as a hedging instrument.

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The following table summarizes the interest rate cap agreements in place as of March 31, 2023.

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Interest Rate Cap Detail								​	​	Notional Amount Outstanding
​	​	​	​	​	​	​	​	​	​	March 31,
Trade date	​	Cap Rate		​	Start Date	​	End Date		​	2023
​	​	​	​	​	​	​	​	​	​	​
March 25, 2021	​	0.75	%	​	April 29, 2021	​	March 28, 2024	​	$	50,000
July 29, 2020	​	0.75	%	​	July 31, 2020	​	December 29, 2023	​	​	100,000
​	​	​	​	​	​	​	​	​	$	150,000

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The Company records the fair value of the interest rate caps as Fair value of derivative instruments in the current and non-current asset section on its Condensed Consolidated Balance Sheets. The Company has elected to use the income approach to value the interest rate derivatives using observable Level 2 market expectations at the measurement date and standard valuation techniques to convert future amounts to a single present amount (discounted) reflecting current market expectations about those future amounts. Level 2 inputs for derivative valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR cash and swap rates, implied volatility, basis swap adjustments, and credit risk at commonly quoted intervals). Mid-market pricing is used as a practical expedient for most fair value measurements.

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The Company recorded a $1,628 unrealized loss for the three months ended March 31, 2023 in AOCI. The estimated income that is currently recorded in AOCI as of March 31, 2023 that is expected to be reclassified into earnings within the next twelve months is $4,852.

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The Effect of Fair Value and Cash Flow Hedge Accounting on the Statements of Operations
​	​	​	​	​	​	​	​
​	​	For the Three Months Ended March 31,					​
​	​	2023			2022
​	​	Interest Expense		​	Interest Expense		​
Total amounts of income and expense line items presented in the statements of operations in which the effects of fair value or cash flow hedges are recorded	​	$	2,029	​	$	2,242	​
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The effects of fair value and cash flow hedging	​	​	​	​	​	​	​
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Gain or (loss) on cash flow hedging relationships in Subtopic 815-20:	​	​	​	​	​	​	​
Interest contracts:	​	​	​	​	​	​	​
Amount of gain or (loss) reclassified from AOCI to income	​	$	(1,724)	​	$	—	​
Premium excluded and recognized on an amortized basis	​	​	39	​	​	43	​
Amount of gain or (loss) reclassified from AOCI to income as a result that a forecasted transaction is no longer probable of occurring	​	​	—	​	​	—	​

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The following table shows the interest rate cap assets as of March 31, 2023 and December 31, 2022:

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​	​	​	​	​	March 31,	​	​	December 31,	​
​	​	Balance Sheet Location	​	​	2023	​	​	2022	​
Derivatives designated as hedging instruments									​
Interest rate caps	​	Fair value of derivative instruments - current	​	$	4,855	​	$	6,112	​
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Interest rate caps	​	Fair value of derivative instruments - noncurrent	​	$	—	​	$	381	​
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Derivatives not designated as hedging instruments									​
Interest rate caps	​	Fair value of derivative instruments - current	​	$	193	​	$	200	​
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Interest rate caps	​	Fair value of derivative instruments - noncurrent	​	$	—	​	$	42	​

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The components of AOCI included in the accompanying Condensed Consolidated Balance Sheet consists of net unrealized gains on cash flow hedges as of March 31, 2023.

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AOCI — January 1, 2023	​	$	6,480	​
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Amount recognized in OCI on derivative, intrinsic	​		(1,822)	​
Amount recognized in OCI on derivative, excluded	​		194	​
Amount reclassified from OCI into income	​		—	​
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AOCI — March 31, 2023	​	$	4,852	​

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- References

No definition available.

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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://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 815
-URI http://asc.fasb.org/topic&trid=2229140

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 815
-SubTopic 40
-Section 50
-Paragraph 5
-Subparagraph (f)
-URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008

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