Derivative Instruments

9 Months Ended

Sep. 30, 2016

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 September 30, 2016, 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 September 30, 2016 or December 31, 2015.

As of September 30, 2016 and December 31, 2015, we had the following outstanding interest rate derivatives that were designated as effective cash flow hedges of interest rate risk (in thousands):

Notional Amount										Fair Value at Significant Other Observable Inputs (Level 2)
As of September 30, 2016			As of December 31, 2015			Type of Derivative	Strike Rate	Effective Date	Expiration Date	As of September 30, 2016			As of December 31, 2015
Currently-paying contracts
$	206,000	(1)	$	206,000	(1)	Swap	0.932	Jun 18, 2012	Apr 18, 2017	$	(356	)	$	(416	)
54,905		(1)	54,905		(1)	Swap	0.670	Aug 6, 2012	Apr 6, 2017	(16		)	69
—			75,000		(1)	Swap	0.500	Aug 6, 2012	Apr 6, 2016	—			(10		)
75,000		(1)	—			Swap	1.016	Apr 6, 2016	Jan 6, 2021	(240		)	—
75,000		(1)	—			Swap	1.164	Jan 15, 2016	Jan 15, 2021	(707		)	—
300,000		(2)	—			Swap	1.435	Jan 15, 2016	Jan 15, 2023	(6,492		)	—
139,017		(3)	133,579		(3)	Swap	0.925	Jul 17, 2012	Apr 18, 2017	(110		)	1,500
219,843		(4)	—			Swap	0.792	Jan 15, 2016	Jan 15, 2019	(3,045		)	—
75,037		(5)	—			Swap	0.779	Jan 15, 2016	Jan 15, 2021	373			—
$	1,144,802		$	469,484						$	(10,593	)	$	1,143

(1) Represents portions of the U.S. dollar tranche of the 5-Year Term Loan.

(2) Represents the U.S. dollar tranche of the 7-Year Term Loan.

(3) Represents a portion of the Singapore dollar tranche of the 5-Year Term Loan. Translation to U.S. dollars is based on exchange rate of $0.73 to 1.00 SGD as of September 30, 2016 and $0.70 to 1.00 SGD as of December 31, 2015.

(4) Represents the British pound sterling tranche of the 5-Year Term Loan. Translation to U.S. dollars is based on exchange rate of $1.30 to £1.00 as of September 30, 2016.

(5) Represents the Canadian dollar tranche of the 5-Year Term Loan. Translation to U.S. dollars is based on exchange rate of $0.76 to 1.00 CAD as of September 30, 2016.

As of September 30, 2016, we estimate that an additional $5.8 million will be reclassified as an increase to interest expense during the twelve months ended September 30, 2017, when the hedged forecasted transactions impact earnings.

Non-designated Hedges

Derivatives not designated as hedges are derivatives that do not meet the criteria for hedge accounting under GAAP or which we have elected to not designate as hedges. We do not use these derivatives for speculative purposes, but instead they are used to manage our exposure to foreign exchange rates. Changes in the fair value of derivatives not designated as hedges are recorded directly in interest and other income in our condensed consolidated income statements. The Company recorded a loss of $3.1 million on the non-designated hedges for the nine months ended September 30, 2016. The Company had no non-designated hedges in place during the nine months ended September 30, 2015.  As of September 30, 2016, we had no non-designated hedges in place.

During the three months ended June 30, 2016, we entered into a series of forward contracts pursuant to which we agreed to sell an amount of foreign currency for an agreed upon amount of USD. These forward contracts were executed to manage foreign currency exposures associated with certain transactions. On July 1, 2016, the forward contracts still in place met the criteria for net investment hedge accounting.

As of September 30, 2016, the Company had the following outstanding derivatives that were designated as hedges under qualifying hedging relationships (notional and fair value amounts in thousands):

Foreign Currency Derivative	Number of Instruments	Notional Amount Sold	Notional Amount Purchased	Maturity Date	Fair Value
Currency forward contracts	4	GBP 357,299	USD 518,469	12/15/2017	$	50,090