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Derivatives | 9 Months Ended
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Sep. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives | Derivatives We utilize derivative instruments, including interest rate swap agreements, to manage our exposure to interest rate risk. We only hold such instruments for economic hedging purposes, not for speculative or trading purposes. Our derivative instruments are transacted only with highly-rated institutions, which reduces our exposure to credit risk in the event of nonperformance. Interest Rate Swaps We are exposed to interest rate risk associated with fluctuations in interest rates on the floating-rate Term Loan Facility, FLSO Term Loan Facility, and FLFO Term Loan Facility. The objective in using interest rate derivatives is to manage our exposure to interest rate movements. To accomplish this objective, we have entered into interest rate swap agreements as part of our interest rate risk management strategy. Interest rate swaps involve the receipt of variable amounts from a counterparty in exchange for the company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. On January 9, 2020, we designated certain of our swaps as cash flow hedges. On the designation date, the cash flow hedges were in a $39.9 million liability position. The cash flow hedges were expected to be highly effective on the designation date and, on a quarterly basis, we performed retrospective and prospective regression assessments to determine whether the cash flow hedges continue to be highly effective. As long as the cash flow hedges are highly effective, changes in fair value are recorded to "Accumulated other comprehensive income" in the Condensed Consolidated Balance Sheets and reclassified to "Interest expense" in the period when the underlying transaction affects earnings. The income tax effects of cash flow hedges are released from "Accumulated other comprehensive income" in the period when the underlying transaction affects earnings. Any stranded income tax effects are released from "Accumulated other comprehensive income" into "Benefit for income taxes" under the portfolio approach. During the year ended December 31, 2021, we completed a series of transactions to modify our interest rate swap positions as follows: (i) All the interest rate swaps outstanding as of December 31, 2020, with the exception of the agreement that matured on February 3, 2021, were de-designated as cash flow hedges on January 31, 2021, (ii) on February 12, 2021, we entered into a $900.0 million receive-fixed interest rate swap which was designed to offset the terms of two December 2016 swaps, and (iii) on February 12, 2021, we terminated all December 2018 swaps and entered into a $1.35 billion pay-fixed interest rate swap, effectively blending the liability position of our existing interest rate swap agreements into the new swap and extending the term of our hedged position to February 2026. The amount remaining in "Accumulated other comprehensive income" for the de-designated December 2016 and December 2018 swaps at the de-designation date was approximately $51.6 million, and is amortized as an increase to "Interest expense" over the effective period of the original swap agreements. The new receive-fixed interest rate swap qualifies as a hybrid instrument in accordance with ASC No. 815, Derivatives and Hedging, consisting of a loan and an embedded derivative for which the fair value option has been elected. This $900.0 million swap remained undesignated to economically offset the undesignated December 2016 swaps. This new swap and the December 2016 swaps matured on February 3, 2022. Cash settlements related to this receive-fixed interest rate swap offset and are classified as operating activities in the Condensed Consolidated Statements of Cash Flows. The new pay-fixed interest rate swap also qualifies as a hybrid instrument in accordance with ASC No. 815, Derivatives and Hedging, consisting of a loan and an embedded at-market derivative that was designated as a cash flow hedge. The loan is accounted for at amortized cost over the life of the swap while the embedded at-market derivative is accounted for at fair value. The $1.35 billion swap was originally indexed to three-month LIBOR and net settled on a quarterly basis with the counterparty for the difference between the fixed rate of 2.3820% and the variable rate based upon three-month LIBOR (subject to a floor of 0.75%) as applied to the notional amount of the swap. In connection with the transactions discussed above, no cash was exchanged between us and the counterparty. The liability of the terminated interest rate swaps as well as the inception value of the receive-fixed interest rate swap was blended into the new pay-fixed interest rate swap. The cash flows related to the portion treated as debt will be classified as financing activities in the Condensed Consolidated Statements of Cash Flows while the portion treated as an at-market derivative will be classified as operating activities. As discussed in Note 7, "Debt", on April 26, 2023 we executed an amendment to our First Lien Credit Agreement, which governs borrowings under our Term Loan Facility. This amendment established Term SOFR as the benchmark rate for determining the applicable interest rate, replacing LIBOR. To continue to manage our exposure to interest rate risk associated with our Term Loan Facility, effective May 9, 2023, we amended our remaining swap agreement to change the index from three-month LIBOR (subject to a floor of 0.75%) to one-month Term SOFR (subject to a floor of 0.75%). The fixed rate also changed from 2.3820% to 2.34150% as a result of the swap agreement amendment. On a monthly basis, we net settle with the counterparty for the difference between the fixed rate of 2.34150% and the variable rate based upon the one-month Term SOFR (subject to a floor of 0.75%) as applied to the notional amount of the swap. In conjunction with the March 2024 Refinancing Transactions, as discussed in Note 7, “Debt”, we issued additional borrowings and used the proceeds to repay previously hedged borrowings under the Term Loan Facility. Given that the specific intent of the new borrowings was a replacement of the previously hedged borrowings and the economic characteristics were the same, we continue to apply hedge accounting on the replacement borrowings. As of December 31, 2023 and September 30, 2024, the cash flow hedge was highly effective. The key terms of interest rate swaps are presented below:
Effective Date |  | Fixed Rate Paid (Received) |  | December 31, 2023 |  | September 30, 2024 |  |
Notional Amount (in millions) |  | Status |  | Notional Amount (in millions) |  | Status |  | Maturity Date
Entered into December 2018: |  |  |  |  |  |  |  |  |  |
February 3, 2019 |  | 2.7490% |  | — |  |  | Matured |  | — |  |  | Matured |  | November 3, 2023
February 3, 2020 |  | 2.7350% |  | — |  |  | Matured |  | — |  |  | Matured |  | November 3, 2023
February 3, 2021 |  | 2.7360% |  | — |  |  | Matured |  | — |  |  | Matured |  | November 3, 2023
February 3, 2022 |  | 2.7800% |  | — |  |  | Matured |  | — |  |  | Matured |  | November 3, 2023
Entered into February 2021: |  |  |  |  |  |  |  |  |  |
February 9, 2021 |  | 2.34150% (1) |  | 1,350.0 |  |  | Active |  | 1,350.0 |  |  | Active |  | February 9, 2026
Total |  |  |  | $ | 1,350.0 |  |  |  |  | $ | 1,350.0 |  |  |  |  |
(1) Fixed rate paid prior to the May 9, 2023 amendment was 2.3820%. Our interest rate swap agreements, excluding the portion treated as debt, are recognized at fair value in the Condensed Consolidated Balance Sheets and are valued using pricing models that rely on market observable inputs such as yield curve data, which are classified as Level 2 inputs within the fair value hierarchy. Fair Values of Derivatives on the Condensed Consolidated Balance Sheets The fair values of our derivatives and their location on the Condensed Consolidated Balance Sheets as of December 31, 2023 and September 30, 2024 were as follows:
|  | December 31, 2023 |  | September 30, 2024
(In millions) |  | Assets |  | Liabilities |  | Assets |  | Liabilities
Derivatives designated as hedging instruments | Location |  |  |  |  |  |  |
Interest rate swaps | Other current assets | $ | 47.0 |  |  | $ | — |  |  | $ | 36.3 |  |  | $ | — |
Interest rate swaps | Other non-current assets | 36.8 |  |  | — |  |  | 11.6 |  |  | — |
Interest rate swaps | Other current liabilities (1) | — |  |  | 17.3 |  |  | — |  |  | 17.4 |
Interest rate swaps | Other non-current liabilities (1) | — |  |  | 20.3 |  |  | — |  |  | 7.3 |
Total |  | $ | 83.8 |  |  | $ | 37.6 |  |  | $ | 47.9 |  |  | $ | 24.7 |
(1) The entire balance is comprised of the financing component of the pay-fixed interest rate swap. For financial statement presentation purposes, we do not offset assets and liabilities under master netting arrangements and all amounts above are presented on a gross basis. The following table, however, is presented on a net asset and net liability basis:
| December 31, 2023 |  | September 30, 2024
(In millions) | Gross Amounts on Balance Sheet |  | Effects of Counterparty Netting |  | Net Amounts |  | Gross Amounts on Balance Sheet |  | Effects of Counterparty Netting |  | Net Amounts
Assets |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | $ | 83.8 |  |  | $ | (37.6) |  |  | $ | 46.2 |  |  | $ | 47.9 |  |  | $ | (24.7) |  |  | $ | 23.2 |
Liabilities |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | $ | 37.6 |  |  | $ | (37.6) |  |  | $ | — |  |  | $ | 24.7 |  |  | $ | (24.7) |  |  | $ | — |
Effect of Derivatives on the Condensed Consolidated Statements of Comprehensive Loss The effect of our derivatives and their location on the Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2023 and 2024 was as follows:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(In millions) |  | 2023 |  | 2024 |  | 2023 |  | 2024
Derivatives not designated as hedging instruments | Location |  |  |  |  |  |  |
Interest rate swaps | Interest income (expense) | $ | (4.7) |  |  | $ | — |  |  | $ | (13.8) |  |  | $ | — |
Derivatives designated as hedging instruments | Location |  |  |  |  |  |  |
Interest rate swaps | Interest income (expense) | $ | 14.7 |  |  | $ | 14.9 |  |  | $ | 40.4 |  |  | $ | 44.7 |
Interest expense was $56.5 million and $18.0 million for the three months ended September 30, 2023 and 2024, respectively, and $170.7 million and $80.1 million for the nine months ended September 30, 2023 and 2024, respectively. As of September 30, 2024, the amount of cash flow hedge gain included within "Accumulated other comprehensive income" that is expected to be reclassified as a reduction to "Interest expense" over the next 12 months is approximately $37.8 million. See Note 12, "Accumulated Other Comprehensive Income (Loss)," for information regarding changes in fair value of our derivatives designated as hedging instruments. Credit-risk-related Contingent Features We have agreements with interest rate swap counterparties that contain a provision whereby if we default on any of our material indebtedness, then we could also be declared in default of our interest rate swap agreements. As of September 30, 2024, our outstanding interest rate swap agreement was in a net asset position.

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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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