Interest Rate Cap

12 Months Ended

Dec. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company is subject to market risk exposure arising from changes in interest rates on its term loan, which bears interest at a rate that is indexed to one-month Term SOFR, as discussed further in Note 11 – Long-Term Debt and Notes Payable. The Company’s objective in using an interest rate derivative is to mitigate its exposure to increases in interest rates. The interest rate cap limits the Company’s exposure to increases in the variable rate index to 1.0% on $2.0 billion of principal outstanding under the term loan, as the interest rate cap provides for payments from the counterparty when interest rates rise above 1.0%. The interest rate cap has a $2.0 billion notional amount and became effective March 31, 2021 for the monthly periods from and including April 30, 2021 through September 30, 2024. The Company pays a monthly premium for the interest rate cap over the term of the agreement. The annual premium is equal to 0.0916% on the notional amount, or approximately $1.8 million.

The interest rate cap has been designated as a cash flow hedge and is highly effective at offsetting the changes in cash outflows when the variable rate index exceeds 1.0%. Changes in the fair value of the interest rate cap, net of tax, are recognized in other comprehensive income and are reclassified out of accumulated other comprehensive income or loss and into interest expense when the hedged interest obligations affect earnings.

The following table outlines the changes in accumulated other comprehensive income (loss), net of tax, during the periods presented:


	For the Year Ended December 31,
	2021		2022		2023
	(in thousands)
Balance as of January 1	$	(2,027)	$	12,282	$	88,602
Gain on interest rate cap contract	14,270		90,730		15,783
Amounts reclassified from accumulated other comprehensive income (loss)	39		(14,410)		(61,478)
Balance as of December 31	$	12,282	$	88,602	$	42,907

The effects on net income of amounts reclassified from accumulated other comprehensive income (loss) are as follows:


	For the Year Ended December 31,
Statement of Operations	2021		2022		2023
	(in thousands)
Gains (losses) included in interest expense	$	(51)	$	19,086	$	80,766
Income tax benefit (expense)	12		(4,676)		(19,288)
Amounts reclassified from accumulated other comprehensive income (loss)	$	(39)	$	14,410	$	61,478

The Company expects that approximately $56.4 million of estimated pre-tax gains will be reclassified from accumulated other comprehensive income into interest expense within the next twelve months.

Refer to Note 13 – Fair Value of Financial Instruments for information on the fair value of the Company’s interest rate cap contract and its balance sheet classification. Refer to Note 1 – Organization and Significant Accounting Policies for the Company’s considerations regarding reference rate reform and the impact to its interest rate cap contract.