Derivative Instruments

3 Months Ended

Mar. 31, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Derivative Instruments

Currently, we use interest rate swaps to manage our interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

To comply with the provisions of fair value accounting guidance, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, as of March 31, 2015, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. We do not have any fair value measurements on a recurring basis using significant unobservable inputs (Level 3) as of March 31, 2015 or December 31, 2014.

As of March 31, 2015 and December 31, 2014, we had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (in thousands):

Notional Amount										Fair Value at Significant Other Observable Inputs (Level 2)
As of March 31, 2015			As of December 31, 2014			Type of Derivative	Strike Rate	Effective Date	Expiration Date	As of March 31, 2015			As of December 31, 2014
Currently-paying contracts
$	410,905	(1)	$	410,905	(1)	Swap	0.717	Various	Various	$	(1,145	)	$	(241	)
138,070		(2)	142,965		(2)	Swap	0.925	July 17, 2012	April 18, 2017	1,547			669
548,975			553,870							402			428
Forward-starting contracts
—		(3)	150,000			Forward-starting Swap	2.091	July 15, 2014	July 15, 2019	—			(2,837		)
Total
$	548,975		$	703,870						$	402		$	(2,409	)

(1) Represents the U.S. dollar tranche of the unsecured term loan.

(2) Represents a portion of the Singapore dollar tranche of the unsecured term loan. Translation to U.S. dollars is based on exchange rate of $0.73 to 1.00 SGD as of March 31, 2015 and $0.75 to 1.00 SGD as of December 31, 2014.

(3) In January 2014, we entered into a forward-starting five-year swap contract to protect against adverse fluctuations in interest rates by reducing our exposure to variability in cash flows relating to interest payments on a forecasted issuance of debt. The accrual period of the swap contract was designed to match the tenor of the planned debt issuance. In the fourth quarter of 2014, changes in the forecasted transaction resulted in the discontinuation of cash flow hedge accounting. As such, changes in the fair value of the forward starting swap were recognized in earnings, within the other income (expense) line item. During the three months ended March 31, 2015, the total net loss recognized on the forward starting swap was approximately $1.6 million, and on January 13, 2015, we cash settled the forward starting swap for approximately $5.7 million, including accrued interest.

As of March 31, 2015, we estimate that an additional $2.1 million will be reclassified as an increase to interest expense during the twelve months ended March 31, 2016, when the hedged forecasted transactions impact earnings.