Derivative Instruments and Hedging Activities

3 Months Ended

Mar. 29, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

Cash Flow Hedges of Interest Rate Risk - On October 24, 2018 and October 25, 2018, the Company entered into variable-to-fixed interest rate swap agreements with 12 counterparties to hedge a portion of the cash flows of the Company’s variable rate debt. The swap agreements have an aggregate notional amount of $550.0 million and mature on November 30, 2022. Under the terms of the swap agreements, the Company pays a weighted-average fixed rate of 3.04% on the notional amount and receives payments from the counterparty based on the one-month LIBOR rate.

The Company’s swap agreements have been designated and qualify as cash flow hedges, are recognized on its Consolidated Balance Sheets at fair value and are classified based on the instruments’ maturity dates. The Company estimates $14.7 million will be reclassified to interest expense over the next 12 fiscal months. The following table presents the fair value and classification of the Company’s swap agreements, as of the periods indicated:



(dollars in thousands)	MARCH 29, 2020		DECEMBER 29, 2019		CONSOLIDATED BALANCE SHEET CLASSIFICATION
Interest rate swaps - liability	$	13,335	$	7,174	Accrued and other current liabilities
Interest rate swaps - liability	26,758		16,835		Other long-term liabilities, net
Total fair value of derivative instruments - liabilities (1)	$	40,093	$	24,009

Accrued interest	$	679	$	632	Accrued and other current liabilities

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(1)	See Note 15 - Fair Value Measurements for fair value discussion of the interest rate swaps.

On May 4, 2020, concurrent with entering into the Amended Credit Agreement, the Company elected to de-designate its interest rate swap hedge relationships and modify its interest rate swaps to more closely align with certain terms of the Amended Credit Agreement. On May 6, 2020, the Company re-designated the cash flow hedge relationship for the

original $550.0 million notional amount, resulting in no impact to the Company’s consolidated financial statements as a result of the hedge activity.

The following table summarizes the effects of the swap agreements on Net (loss) income for the periods indicated:



	THIRTEEN WEEKS ENDED
(dollars in thousands)	MARCH 29, 2020			MARCH 31, 2019
Interest rate swap (expense) income recognized in Interest expense, net	$	(1,880	)	$	491
Income tax benefit (expense) recognized in Provision for income taxes	484			(127		)
Total effects of the interest rate swaps on Net (loss) income	$	(1,396	)	$	364

By utilizing the interest rate swaps, the Company is exposed to credit-related losses in the event that the counterparty fails to perform under the terms of the derivative contract. To mitigate this risk, the Company enters into derivative contracts with major financial institutions based upon credit ratings and other factors. The Company continually assesses the creditworthiness of its counterparties. As of March 29, 2020, all counterparties to the interest rate swaps had performed in accordance with their contractual obligations.

The Company has agreements with each of its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if the repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on indebtedness.

As of March 29, 2020 and December 29, 2019, the fair value of the Company’s interest rate swaps was in a net liability position, including accrued interest but excluding any adjustment for nonperformance risk, of $41.0 million and $24.8 million, respectively. As of March 29, 2020 and December 29, 2019, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions as of March 29, 2020 and December 29, 2019, it could have been required to settle its obligations under the agreements at their termination value of $41.0 million and $24.8 million, respectively.