Derivative Instruments

9 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Cash Flow Hedges

Interest Rate Swap Agreements

We utilize interest rate swap agreements to hedge our exposure to interest rate risk. At March 31, 2020, we had two outstanding interest rate swap agreements with notional values of $100 million and $80 million.

The notional value of each interest rate swap agreement is expected to match the corresponding principal amount of a portion of our borrowings under the Credit Facility.

The $100 million notional value agreement is effective as of December 1, 2017 and expires on December 1, 2021. During this period, the notional amount will have a fixed interest rate of 1.9275% and Citizens Bank, National Association, as counterparty to the agreement, will pay us interest at a floating rate based on the 1 month USD-LIBOR-BBA swap rate on the notional amount. Interest payments are made quarterly on a net settlement basis.

The $80 million notional value agreement is effective as of December 1, 2021 and expires on July 16, 2023. During this period, the notional amount will have a fixed interest rate of 2.125% and Bank of America, N.A., as counterparty to the agreement, will pay us interest at a floating rate based on the 1 month USD-LIBOR-BBA swap rate on the notional amount. Interest payments will be made monthly on a net settlement basis.

We designated the interest rate swaps as hedging instruments and they qualified for hedge accounting upon inception and at March 31, 2020. To continue to qualify for hedge accounting, the instruments must retain a “highly effective” ability to hedge interest rate risk for borrowings under the Credit Facility. We are required to test hedge effectiveness at the end of each financial reporting period. If a derivative qualifies for hedge accounting, changes in fair value of the hedge instrument are recognized in accumulated other comprehensive income (loss) (AOCI) and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. The reclassification into earnings is recorded as a component of our interest expense within other expense, net. If the instrument were to lose some or all of its hedge effectiveness, changes in fair value for the “ineffective” portion of the instrument would be recorded immediately in earnings.

The fair values of the interest rate swaps and their respective locations in our consolidated balance sheets at March 31, 2020 and June 30, 2019 were as follows:



Description	Balance Sheet Location	March 31, 2020		June 30, 2019
Derivative interest rate swaps		(in thousands)
Short-term derivative liability	Accrued expenses and other current liabilities	$	1,404	$	37
Long-term derivative liability	Other liabilities	$	3,471	$	1,248

The following table presents the effect of the derivative interest rate swaps in our consolidated statement of comprehensive loss for the nine months ended March 31, 2020 and 2019.



	Gain (Loss) in AOCI June 30, 2019			Amount of Gain (Loss) Recognized in OCI on Derivative Instruments (Effective Portion)			Amount of (Gain) Loss Reclassified from AOCI into Net Loss (Effective Portion) ⁽¹⁾			Gain (Loss) in AOCI March 31, 2020
	(in thousands)
Derivative interest rate swap	$	(1,285	)	$	(3,595	)	$	5		$	(4,875	)

	Gain (Loss) in AOCI June 30, 2018			Amount of Gain (Loss) Recognized in OCI on Derivative Instruments (Effective Portion)			Amount of (Gain) Loss Reclassified from AOCI into Net Loss (Effective Portion) ⁽¹⁾			Gain (Loss) in AOCI March 31, 2019
	(in thousands)
Derivative interest rate swap	$	2,590		$	(1,671	)	$	(281	)	$	638

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⁽¹⁾	Recorded as interest income (expense) within other expense, net in our unaudited consolidated statements of comprehensive income (loss).

During the three and nine months ended March 31, 2020, we concluded that no portion of the hedges was ineffective.

We expect to reclassify approximately $1.6 million of this unrealized loss from AOCI to earnings over the next twelve months.