Interest Rate Swaps

6 Months Ended

Jun. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Risk Management Objective of Using Derivatives

We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity, and credit 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 exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing and duration of our known or expected cash payments principally related to our borrowings.

Derivative Instruments

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage exposure to interest rate movements. To accomplish this objective, we primarily use interest rate swaps as part of our 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 us making fixed-rate payments over the life of the agreements without exchange of the underlying notional value. We do not use derivatives for trading or speculative purposes.

The change in fair value of derivatives designated and qualifying as cash flow hedges is initially recorded in accumulated other comprehensive income/(loss) (“AOCI”) and is subsequently reclassified from AOCI into earnings in the period that the hedged forecasted transaction affects earnings.

The following table sets forth a summary of our interest rate swaps at June 30, 2020 and December 31, 2019 (dollars in thousands):



					Current Notional Value⁽¹⁾				Fair Value of Interest Rate Derivative Assets /(Derivative Liabilities)⁽²⁾
Derivative Instrument	Effective Date	Maturity Date	LIBOR Interest Strike Rate		June 30, 2020		December 31, 2019		June 30, 2020			December 31, 2019
Interest Rate Swap	2/14/2018	1/14/2022	1.3490	%	$	125,000	$	125,000	$	(2,347	)	$	489
Interest Rate Swap	8/14/2018	1/14/2022	1.4060	%	$	100,000	$	100,000	$	(1,966	)	$	277
Interest Rate Swap	12/14/2018	8/14/2021	1.7640	%	$	100,000	$	100,000	$	(1,835	)	$	(332	)
Interest Rate Swap	7/22/2019	11/22/2024	2.7625	%	$	150,000	$	150,000	$	(16,768	)	$	(8,156	)


(1)	Represents the notional value of swaps that are effective as of the balance sheet date presented.


(2)	The fair value of derivative assets are included in the line item “Interest rate swap asset” in the accompanying consolidated balance sheets and the fair value of (derivative liabilities) are included in the line item “Interest rate swap liability” in the accompanying consolidated balance sheets.

The following table sets forth the impact of our interest rate swaps on our consolidated statements of operations for the periods presented (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Interest Rate Swaps in Cash Flow Hedging Relationships:
Amount of loss recognized in AOCI on derivatives	$	(1,920	)	$	(7,761	)	$	(17,318	)	$	(12,036	)
Amount of (loss) gain reclassified from AOCI into earnings under “Interest expense”	$	(1,694	)	$	788		$	(2,124	)	$	1,640
Total interest expense presented in the Consolidated Statement of Operations in which the effects of cash flow hedges are recorded (line item “Interest expense”)	$	7,428		$	6,255		$	14,877		$	12,726

During the next twelve months, we estimate that an additional $8.3 million will be reclassified from AOCI into earnings as an increase to interest expense.

Credit-risk-related Contingent Features

Certain of our agreements with our derivative counterparties contain a provision where if we default on any of our indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender within a specified time period, then we could also be declared in default on its derivative obligations.

Certain of our agreements with our derivative counterparties contain provisions where if a merger or acquisition occurs that materially changes our creditworthiness in an adverse manner, we may be required to fully collateralize our obligations under the derivative instrument.