Derivative Financial Instruments

9 Months Ended

Jun. 30, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Cash Flow Hedges of Interest Rate Risk

The Company's objective in using interest rate derivatives is to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The effective portion of changes in the fair value of derivatives, designated and that qualify as cash flow hedges, is recorded in Accumulated Other Comprehensive Income on our consolidated balance sheets and is subsequently reclassified into earnings in the period that the hedged transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.

As of June 30, 2018, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (dollars in thousands):


Interest Rate Derivative	Notional Amount		Fixed Rate		Maturity
Interest rate cap on LIBOR	$	9,200	3.86	%	January 1, 2021
Interest rate swap	1,657		5.25	%	April 1, 2022
Interest rate swap	26,316		3.61	%	May 6, 2023
Interest rate swap	27,000		4.05	%	September 19, 2026

The table below presents the fair value of the Company’s derivative financial instruments as well as its classification on the consolidated balance sheets as of the dates indicated (amounts in thousands):


Derivatives as of:
June 30, 2018				September 30, 2017
Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Other Assets	$	3,478	Other Assets	$	1,460
Accounts payable and accrued liabilities	$	—	Accounts payable and accrued liabilities	$	14

As of June 30, 2018, the Company did not have any derivative instruments that were considered to be ineffective and does not use derivative instruments for trading or speculative purposes.

The following table presents the effect of the Company’s interest rate swaps on the consolidated statements of comprehensive (loss) income for the dates indicated (dollars in thousands):


	Three Months Ended June 30,						Nine Months Ended June 30,
	2018		2017		2018		2017
Amount of gain (loss) recognized on derivative in Other Comprehensive Income	$	444	$	(309)	$	2,034	$	2,739
Amount of gain (loss) reclassified from Accumulated Other Comprehensive Income into Interest expense	$	46	$	(80)	$	2	$	(336)

No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from effectiveness testing on the Company's cash flow hedges during the three and nine months ended June 30, 2018 and June 30, 2017. The Company estimates an additional $432,000 will be reclassified from other comprehensive loss as a decrease to interest expense over the next twelve months.

Credit-risk-related Contingent Features

The agreement between the Company and its derivative counterparties provides that if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, the Company could be declared in default on its derivative obligations.