Derivative Financial Instruments

9 Months Ended

Sep. 30, 2021

Interest Rate Derivatives [Abstract]

Derivative Financial Instruments

18. Derivative Financial Instruments

The following table summarizes the terms of the Partnership’s total return swaps as of September 30, 2021 and December 31, 2020:

Purchase Date	Notional Amount		Effective Date	Termination Date	Period End Variable Rate Paid	Period End Variable Rate Received	Variable Rate Index	Counterparty	Fair Value as of September 30, 2021
Sept 2020		39,700,231	Sept 2020	Sept 2025	4.25% (1)	9.12% (3)	3-month LIBOR	Mizuho Capital Markets	$	80,492
Sept 2020		63,500,000	Sept 2020	Mar 2022	1.00% (2)	9.12% (3)	3-month LIBOR	Mizuho Capital Markets		214,736
									$	295,228

⁽¹⁾ Variable rate equal to 3-month LIBOR + 3.75%, subject to a floor of 4.25%.

⁽²⁾ Variable rate equal to 3-month LIBOR + 0.50%, subject to a floor of 1.00%.

⁽³⁾ Variable rate equal to 3-month LIBOR + 9.00%.

Purchase Date	Notional Amount		Effective Date	Termination Date	Period End Variable Rate Paid	Period End Variable Rate Received	Variable Rate Index	Counterparty	Fair Value as of December 31, 2020
Sept 2020		39,970,485	Sept 2020	Sept 2025	4.25% (1)	9.22% (3)	3-month LIBOR	Mizuho Capital Markets	$	77,995
Sept 2020		63,500,000	Sept 2020	Mar 2022	1.00% (2)	9.22% (3)	3-month LIBOR	Mizuho Capital Markets		215,631
									$	293,626

⁽¹⁾ Variable rate equal to 3-month LIBOR + 3.75%, subject to a floor of 4.25%.

⁽²⁾ Variable rate equal to 3-month LIBOR + 0.50%, subject to a floor of 1.00%.

⁽³⁾ Variable rate equal to 3-month LIBOR + 9.00%.

Each of the total return swaps has the Partnership’s Secured Notes with Mizuho as the specified reference security (Note 16). The combined notional amount of the total return swaps is $103.2 million, which is the same as the principal balance of the Secured Notes. The rate received on each total return swap is equal to the interest rate on the Secured Notes such that they offset one another, resulting in a net interest cost equal to the rate paid on each total return swap. Under the total return swaps, the Partnership is liable for any decline in the value of the Secured Notes. If the fair value of the underlying Secured Notes is less than the outstanding principal balance, the Partnership is required to post additional cash collateral equal to the amount of the deficit. Such a deficit will also be reflected in the fair value of the total return swaps.

The Partnership was required to initially fund cash collateral with Mizuho for each total return swap. The total return swap with a notional amount of $39.7 million, requires the Partnership to maintain cash collateral equal to 35% of the notional amount, which was approximately $14.0 million as of September 30, 2021. The second total return swap with a notional amount of $63.5 million, requires the Partnership to maintain cash collateral equal to 100% of the notional amount, which was approximately $63.5 million as of September 30, 2021. Through March 2022, the Partnership has the option to allocate notional amounts from the second total return swap to the first total return swap, in minimum increments of $10.0 million, and receive net cash proceeds of approximately 65% of the reallocated notional amount. The second total return swap terminates in March 2022 and any remaining cash collateral will be used to pay down the principal balance of the Secured Notes.  

The following tables summarize the Partnership’s interest rate cap agreements as of September 30, 2021 and December 31, 2020:

Purchase Date	Notional Amount		Maturity Date	Effective Capped Rate (1)			Index	Variable Debt Financing Hedged (1)	Counterparty	Fair Value as of September 30, 2021
Aug 2019		76,953,191	Aug 2024		4.5	%	SIFMA	M31 TEBS	Barclays Bank PLC	$	16,573
										$	16,573

Purchase Date	Notional Amount		Maturity Date	Effective Capped Rate (1)			Index	Variable Debt Financing Hedged (1)	Counterparty	Fair Value as of December 31, 2020
Aug 2019		77,979,924	Aug 2024		4.5	%	SIFMA	M31 TEBS	Barclays Bank PLC	$	27,877
										$	27,877

⁽¹⁾ See Notes 16 and 23 for additional details.

The Partnership’s derivative financial instruments are not designated as hedging instruments and are recorded at fair value. Changes in fair value are included in current period earnings as “Interest expense” in the condensed consolidated statements of operations. See Note 23 for a description of the methodology and significant assumptions for determining the fair value of the derivatives. The derivative financial instruments are presented within “Other assets” in the condensed consolidated balance sheets.