Derivative Instruments

The Company’s objective in using derivative instruments is to manage its exposure to interest rate movements. To accomplish this objective, the Company uses interest rate swaps, including forward-starting swaps, as a primary part of its cash flow hedging strategy, which involves the receipt of variable–rate interest payments in exchange for fixed–rate payments without exchange of the underlying notional amount. The Company may elect not to apply hedge accounting to its derivative instruments; however, it does not use derivative financial instruments for trading or speculative purposes.

On June 30, 2017, the Company dedesignated the hedge accounting relationships of the Company’s 16 interest rate swaps that were previously designated as cash flow hedges of forecasted interest payments. The 16 interest rate swaps are with four different counterparties and have maturity dates that run concurrently. The interest rate swaps each have one-year terms that run consecutively which began in July 2016 and will end in July 2020 with predetermined fixed pay rates that increase with each new term to more closely align with the one–month LIBOR forward curve as of the trade date of the interest rate swaps. The Company paid a weighted–average fixed rate of 0.85% during the first one-year term that ended in July 2017, which will increase to a weighted–average rate of approximately 1.11%, 1.39%, and 1.69% in the second, third and fourth one-year terms, respectively. As a result of the June 2017 dedesignation, cumulative deferred gains of $8.6 million that had previously been recognized in accumulated other comprehensive income will be amortized as a reduction of interest expense as the hedged interest payments continue to occur through July 2020.

In June 2017, the Company entered into eight additional interest rate swaps for which hedge accounting was not elected. These swaps are also intended to meet the Company’s objectives noted above and are not speculative. The eight interest rate swaps are with two different counterparties and have maturity dates that run concurrently. The interest rate swaps each have one-year terms that run consecutively beginning July 2017 and will end in July 2021 with predetermined fixed pay rates that increase with each new term to more closely align with the one-month LIBOR forward curve as of the trade date of the interest rate swaps. Station LLC will pay a weighted-average fixed rate of 1.32% during the first one-year term ending in July 2018, which will increase to a weighted-average rate of approximately 1.59%, 1.78% and 1.94% during the second, third and fourth one-year terms, respectively.

At June 30, 2017, the Company’s interest rate swaps effectively converted $1.0 billion of the Company’s variable interest rate debt (based on one-month LIBOR that is subject to a minimum of 0.75%) to a fixed rate of 3.47%.

The fair values of the Company’s interest rate swaps, exclusive of accrued interest, as well as their classification on the Condensed Consolidated Balance Sheets, are presented below (amounts in thousands):



	June 30, 2017		December 31, 2016
Interest Rate Swaps Designated in Cash Flow Hedging Relationships
Prepaid expenses and other current assets	$	—	$	19
Other assets, net	—		10,661
Other accrued liabilities	—		8
Interest Rate Swaps Not Designated in Cash Flow Hedging Relationships
Prepaid expenses and other current assets	61		—
Other assets, net	11,868		—

For derivative instruments that are designated and qualify as cash flow hedges of forecasted interest payments, the Company defers the gain or loss on the effective portion of the derivative’s change in fair value as a component of other comprehensive income (loss) until the interest payments being hedged are recorded as interest expense, at which time the amounts in accumulated other comprehensive income are reclassified as an adjustment to interest expense. The Company recognizes the gain or loss on any ineffective portion of the derivative’s change in fair value in the period in which the change occurs as a component of Change in fair value of derivative instruments in the Condensed Consolidated Statements of Operations. For derivative instruments that are not designated in cash flow hedge accounting relationships, the Company records the derivative’s change in the fair value in the period in which the change occurs as a component of Change in fair value of derivative instruments in the Condensed Consolidated Statements of Operations.

As a result of (i) the June 2017 dedesignation of the Company’s 16 interest rate swaps previously designated in cash flow hedging relationships and (ii) the Company’s election not to apply hedge accounting to its eight new interest rate swaps, beginning July 2017, the changes in fair value of all of the Company’s derivative instruments will be reflected in Change in fair value of derivative instruments in the Condensed Consolidated Statements of Operations in the period in which the change occurs. As such, interest expense will not reflect a fixed rate as it previously did under hedge accounting for that portion of the debt hedged. However, the economics will be unchanged and the Company will continue to meet its risk management objective and achieve fixed cash flows attributable to interest payments on the debt principal being hedged by its interest rate swaps.

At June 30, 2017, approximately $2.6 million of deferred net gains from the Company’s previously designated interest rate swaps is expected to be reclassified from accumulated other comprehensive income into earnings during the next twelve months due to the amortization of deferred gains from the interest rate swaps that were dedesignated on June 30, 2017 and the amortization of deferred losses on a previously terminated interest rate swap.

Information about gains and losses on derivative financial instruments that were designated in cash flow hedging relationships and their location within the condensed consolidated financial statements is presented below (amounts in thousands):



Derivatives Designated in Cash Flow Hedging Relationships	Amount of Loss on Derivatives Recognized in Other Comprehensive (Loss) Income (Effective Portion)						Location of Loss Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion)						Location of (Loss) Gain on Derivatives Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of (Loss) Gain on Derivatives Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	Three Months Ended June 30,							Three Months Ended June 30,							Three Months Ended June 30,
	2017			2016				2017			2016				2017			2016
Interest rate swaps	$	(3,268	)	$	(5,612	)	Interest expense, net	$	(986	)	$	(335	)	Change in fair value of derivative instruments	$	(37	)	$	90



Derivatives Designated in Cash Flow Hedging Relationships	Amount of Loss on Derivatives Recognized in Other Comprehensive (Loss) Income (Effective Portion)						Location of Loss Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion)						Location of Gain on Derivatives Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain on Derivatives Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	Six Months Ended June 30,							Six Months Ended June 30,							Six Months Ended June 30,
	2017			2016				2017			2016				2017		2016
Interest rate swaps	$	(1,875	)	$	(7,127	)	Interest expense, net	$	(2,521	)	$	(1,601	)	Change in fair value of derivative instruments	$	2	$	87

Information about gains on derivative financial instruments that were not designated in hedge accounting relationships and their location within the Condensed Consolidated Statements of Operations is presented below (amounts in thousands):



Derivatives Not Designated in Cash Flow Hedging Relationships	Location of Gain on Derivatives Recognized in Income	Amount of Gain on Derivatives Recognized in Income
		Three Months Ended June 30,				Six Months Ended June 30,
		2017		2016		2017		2016
Interest rate swaps	Change in fair value of derivative instruments	$	3,367	$	—	$	3,367	$	—

The Company has not posted any collateral related to the interest rate swap agreements; however, the Company’s obligations under the interest rate swap agreements are subject to the security and guarantee arrangements applicable to the Company’s credit facility. The interest rate swap agreements contain a cross-default provision under which the Company could be declared in default on its obligation under such agreements if certain conditions of default exist on the Company’s credit facility. At June 30, 2017, the termination value of the Company’s interest rate swaps, including accrued interest, was a net asset of $12.0 million.