DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING

We are exposed to interest rate risk through our variable-rate debt. We manage this risk primarily by managing the amount, sources, and duration of our debt funding and through the use of derivative financial instruments. Specifically, we enter into derivative financial instruments to manage our exposure to known or expected cash payments related to our variable-rate debt. The maximum length of time over which we have hedged our exposure to variable interest rates with our existing derivative financial instruments is approximately seven years.

Our objectives in using derivative financial instruments are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish these objectives, we primarily use interest rate swaps as part of our interest rate risk management strategy. Our interest rate swaps are designated as cash flow hedges and involve the receipt of variable-rate payments from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

Our agreements with our derivative counterparties contain provisions such that if we default, or can be declared in default, on any of our indebtedness, then we could also be declared in default on our derivative financial instruments.

Information about our derivative financial instruments at December 31, 2019 and 2018 is as follows (dollar amounts in thousands):



			Average Annual Effective Fixed Rate		Notional Amount				Fair Value
Contract date	Effective Date	Expiration Date	Average Annual Effective Fixed Rate		December 31, 2019		December 31, 2018		December 31, 2019			December 31, 2018
October 2, 2017	January 29, 2018	January 31, 2023	1.98	%	$	100,000	$	100,000	$	(1,316	)	$	1,758
October 2, 2017	January 29, 2018	January 31, 2023	1.98	%	100,000		100,000		(1,350		)	1,703
June 11, 2018	September 28, 2018	September 30, 2024	2.87	%	75,000		75,000		(4,389		)	(1,656		)
June 11, 2018	December 31, 2018	December 31, 2025	2.93	%	125,000		125,000		(9,122		)	(3,386		)
					$	400,000	$	400,000	$	(16,177	)	$	(1,581	)

Our interest rate swaps have been designated as cash flow hedges and are valued using a market approach, which is a Level 2 valuation technique. At December 31, 2019, all of our interest rate swaps were in a liability position as a result of a decline in short term interest rates and a continued flattening of the forward yield curve during 2019. At December 31, 2018, two of our interest rate swaps were in an asset position and two were in a liability position. We are not required to post any collateral related to these agreements and we are not in breach of any financial provisions of the agreements.

Changes in the fair value of the hedging instruments included in the assessment of hedge effectiveness will be recorded in other comprehensive income. Amounts deferred in other comprehensive income will be reclassified to interest expense as interest payments are made on the hedged variable-rate debt. In 2020, we estimate that an additional $3.4 million will be reclassified from other comprehensive income and recorded as an increase to interest expense.

The table below details the location in the financial statements of the gain or loss recognized on derivative financial instruments designated as cash flow hedges (in thousands):



	2019			2018			2017
(Loss) Gain recognized in Accumulated other comprehensive loss on derivative financial instruments	$	(15,327	)	$	(3,050	)	$	1,703
Loss reclassified from Accumulated other comprehensive loss to interest expense	$	(731	)	$	(150	)	$	(734	)
Total interest expense and other finance expense presented in the Consolidated Statement of Operations in which the effects of cash flow hedges are recorded	$	(41,030	)	$	(41,944	)	$	(29,687	)