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DERIVATIVE INSTRUMENTS
 12 Months Ended
Dec. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments DERIVATIVE INSTRUMENTS
The Company utilizes derivative financial instruments for hedging and non-trading purposes to limit the Company’s exposure to its variable interest rate risk. Use of derivative financial instruments in hedging strategies subjects the Company to certain risks, such as market and credit risks. Market risk represents the possibility that the value of the derivative financial instrument will change. Credit risk related to a derivative financial instrument represents the possibility that the counterparty will not fulfill the terms of the contract. The notional, or contractual, amount of the Company’s derivative financial instruments is used to measure interest to be paid or received and does not represent the Company’s exposure due to credit risk. Credit risk is monitored through established approval procedures, including reviewing credit ratings when appropriate.
During 2017, Option Care entered into interest rate caps that reduce the risk of increased interest payments due to rising interest rates. The hedges offset the risk of rising interest rates through 2020 on the first $250.0 million of the Previous First Lien Term Loan. The interest rate caps perfectly offset the terms of the interest rates associated with the variable interest rate Previous First Lien Term Loan. Option Care entered into the interest rate caps as a cash flow hedge for a notional amount of $1.9 million. In April 2019, Option Care terminated its interest rate caps and received cash proceeds of $1.7 million, net of early termination fees. In conjunction with the termination of the interest rate caps, Option Care discontinued the hedge accounting associated with the interest rate caps.
In August 2019, the Company entered into interest rate swap agreements that reduce the variability in the interest rates on the newly-issued debt obligations. The first interest rate swap for $925.0 million notional was effective in August 2019 with $911.1 million designated as a cash flow hedge against the underlying interest rate on the First Lien Term Loan interest payments indexed to one-month LIBOR through August 2021. In accordance with ASU 2017-12, Targeted Improvements to Accounting for Hedges, the Company has determined that the $911.1 million designated cash flow hedge is perfectly effective. The remaining $13.9 million notional amount of the first interest rate swap is not designated as a hedging instrument. The second interest rate swap for $400.0 million notional was effective in November 2019 and was designated as a cash flow hedge against the underlying interest rate on the Second Lien Notes interest payment indexed to three-month LIBOR through November 2020.
In May 2020, the Company elected to PIK the Second Lien Notes’ quarterly interest payment due in August 2020. Upon making the PIK election, the Company determined that the hedged interest payment would no longer occur, resulting in an ineffective hedge, so the Company discontinued hedge accounting on its $400.0 million notional interest rate swap. As a result, the Company reclassified accumulated comprehensive loss of $3.7 million to interest expense, net in the consolidated statements of comprehensive income (loss). The gains and losses associated with the $400.0 million notional swap were recognized in net income (loss) through interest expense until the swap expired in November 2020. See Note 11, Indebtedness, for further discussion of the PIK.
The following table summarizes the amount and location of the Company’s derivative instruments in the consolidated balance sheets (in thousands):
Fair value - Derivatives in liability position
DerivativeBalance Sheet CaptionDecember 31, 2020December 31, 2019
Interest rate swaps designated as cash flow hedgesAccrued expenses and other current liabilities$11,172 $1,275 
Interest rate swaps not designated as hedgesAccrued expenses and other current liabilities170 — 
Interest rate swaps designated as cash flow hedgesOther noncurrent liabilities— 5,920 
Interest rate swaps not designated as hedgesOther noncurrent liabilities— 90 
Total derivatives$11,342 $7,285 
The gain and loss associated with the changes in the fair value of the effective portion of the hedging instrument are recorded into other comprehensive (loss) income. The gain and loss associated with the changes in the fair value of the $400.0 million notional swap and the $13.9 million notional amount not designated as a hedging instrument are recognized in net income (loss) through interest expense. The following table presents the pre-tax gains (losses) from derivative instruments recognized in other comprehensive (loss) income in the Company’s consolidated statements of comprehensive income (loss) (in thousands):
Years Ended December 31,
Derivative202020192018
Interest rate caps designated as cash flow hedges$— $(1,103)$1,008 
Interest rate swaps designated as cash flow hedges(7,723)(7,195)— 
Interest rate swaps that discontinued hedge accounting3,746——
Total$(3,977)$(8,298)$1,008 
The following table presents the amount and location of pre-tax income (loss) recognized in the Company’s consolidated statement of comprehensive income (loss) related to the Company’s derivative instruments (in thousands):
Year Ended December 31,
DerivativeIncome Statement Caption202020192018
Interest rate caps designated as cash flow hedgesInterest expense$— $(125)$300 
Interest rate swaps designated as cash flow hedgesInterest expense(12,799)(115)— 
Interest rate swaps not designated as hedgesInterest expense(34)(92)— 
Interest rate swaps that discontinued hedge accountingInterest expense(3,746)— — 
Total$(16,579)$(332)$300 
The Company expects to reclassify $11.2 million of total interest rate costs from accumulated other comprehensive loss against interest expense during the next 12 months.