Derivatives

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Interest Rate Swaps

The Company uses interest rate swaps to hedge variable interest payments due on certain of its term loans and aggregation facility. These swaps allow the Company to incur fixed interest rates on these loans and receive payments based on variable interest rates with the swap counterparty based on SOFR (daily, one month, three month) on the notional amounts over the life of the swaps. In the second quarter of 2023, the Company entered into bilateral agreements with its swap counterparties to transition the remaining portion of its swaps to SOFR. The Company made various elections under FASB ASC Topic 848, Reference Rate Reform, related to changes in critical terms of the hedging relationships due to reference rate reform to not result in a de-designation of these hedging relationships. As of September 30, 2023, all of the Company's interest rate swap agreements were indexed to SOFR.

The interest rate swaps have been designated as cash flow hedges. The credit risk adjustment associated with these swaps is the risk of non-performance by the counterparties to the contracts. In the nine months ended September 30, 2023, the hedge relationships on the Company’s interest rate swaps have been assessed as highly effective as the quarterly assessment performed determined changes in cash flows of the derivative instruments have been highly effective in offsetting the changes in the cash flows of the hedged items, are expected to be highly effective in the future and the critical terms of the interest rate swaps match the critical terms of the underlying forecasted hedged transactions. Accordingly, changes in the fair value of these derivatives are recorded as a component of accumulated other comprehensive income, net of income taxes. Changes in the fair value of these derivatives are subsequently reclassified into earnings, and are included in interest expense, net in the Company’s statements of operations, in the period that the hedged forecasted transactions affect earnings. To the extent that the hedge relationships are not effective, changes in the fair value of these derivatives are recorded in other expenses, net in the Company's statements of operations on a prospective basis.

The Company’s master netting and other similar arrangements allow net settlements under certain conditions. When those conditions are met, the Company presents derivatives at net fair value. As of September 30, 2023, the information related to these offsetting arrangements were as follows (in thousands):


Instrument Description	Gross Amounts of Recognized Assets / Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Assets / Liabilities Included in the Consolidated Balance Sheet		Notional Amount (1)
Assets:
Derivatives designated as hedging instruments	$	170,712	$	(6)	$	170,706	$	1,758,578
Derivatives not designated as hedging instruments	88,211		—		88,211		1,856,690
Total derivative assets	$	258,923	$	(6)	$	258,917	$	3,615,268

Liabilities:
Derivatives designated as hedging instruments	$	(6)	$	6	$	—	$	—
Derivatives not designated as hedging instruments	—		—		—		—
Total derivative liabilities	$	(6)	$	6	$	—	$	—
Total	$	258,917	$	—	$	258,917	$	3,615,268

(1) Comprised of 75 interest rate swaps which effectively fix the SOFR portion of interest rates on outstanding balances of certain loans under the senior and securitized sections of the debt footnote table (see Note 8, Indebtedness) at 0.31% to 3.78% per annum. These swaps mature from April 30, 2024 to January 31, 2043.

As of December 31, 2022, the information related to these offsetting arrangements were as follows (in thousands):


Instrument Description	Gross Amounts of Recognized Assets / Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Assets / Liabilities Included in the Consolidated Balance Sheet		Notional Amount
Assets:
Derivatives designated as hedging instruments	$	133,168	$	—	$	133,168	$	2,122,222
Derivatives not designated as hedging instruments	44,659		(4,523)		40,136		1,095,820
Total derivative assets	$	177,827	$	(4,523)	$	173,304	$	3,218,042

Liabilities:
Derivatives designated as hedging instruments	(3,724)		—		(3,724)		—
Derivatives not designated as hedging instruments	(4,523)		4,523		—		—
Total derivative liabilities	$	(8,247)	$	4,523	$	(3,724)	$	—
Total	$	169,580	$	—	$	169,580	$	3,218,042

The gains on derivatives designated as cash flow hedges recognized into OCI, before tax effect, consisted of the following (in thousands):


	Three months ended September 30,
	2023		2022
Derivatives designated as cash flow hedges:
Interest rate swaps	$	(79,261)	$	(60,900)


	Nine months ended September 30,
	2023		2022
Derivatives designated as cash flow hedges:
Interest rate swaps	$	(92,306)	$	(171,664)

The gains (losses) on derivatives financial instruments recognized into the consolidated statements of operations, before tax effect, consisted of the following (in thousands):


	Three months ended September 30,
	2023				2022
	Interest expense, net		Other expense, net		Interest expense, net		Other expense, net
Derivatives designated as cash flow hedges:
Interest rate swaps:
Gains reclassified from AOCI into income	$	(10,274)	$	—	$	(7,887)	$	—
Derivatives not designated as cash flow hedges:
Interest rate swaps:
Gains recognized into income	—		(81,461)		—		(71,825)
Total gains	$	(10,274)	$	(81,461)	$	(7,887)	$	(71,825)


	Nine months ended September 30,
	2023				2022
	Interest expense, net		Other expense, net		Interest expense, net		Other expense, net
Derivatives designated as cash flow hedges:
Interest rate swaps:
(Gains) losses reclassified from AOCI into income	$	(26,345)	$	—	$	1,025	$	—
Derivatives not designated as cash flow hedges:
Interest rate swaps:
Gains recognized into income	—		(99,133)		—		(192,838)
Total (gains) losses	$	(26,345)	$	(99,133)	$	1,025	$	(192,838)

All amounts in Accumulated other comprehensive income (loss) ("AOCI") in the consolidated statements of redeemable noncontrolling interests and equity relate to derivatives, refer to the consolidated statements of comprehensive (loss) income. The net gain (loss) on derivatives includes the tax effect of $14.5 million and $20.3 million for the three months ended September 30, 2023 and 2022, respectively, and $13.8 million and $21.2 million for the nine months ended September 30, 2023 and 2022, respectively.

During the next 12 months, the Company expects to reclassify $38.4 million of net gains on derivative instruments from accumulated other comprehensive income to earnings. There were 33 undesignated derivative instruments recorded by the Company as of September 30, 2023.