Derivative financial instruments

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Interest rate swaps

Effective March 29, 2018, we entered into two interest rate swaps to mitigate the interest rate risk inherent to our floating rate debt. The interest rate swaps are not for trading purposes and have fixed notional values of $200.0 million and $600.0 million. The fixed rate paid by us is 2.85% and the variable rate received resets monthly to the one-month LIBOR rate, which results in us fixing LIBOR at 2.85% on $800.0 million of our Term Loan. The interest rate swaps mature on March 31, 2023.

On March 20, 2019, we elected to adopt hedge accounting and designate our interest rate swaps as cash flow hedges. Prior to our adoption of hedge accounting, the change in fair value of our interest rate swaps was recognized through interest expense in the Condensed Consolidated Statements of Operations. Following the adoption, the change in the fair value of our interest rate swaps that qualifies as effective cash flow hedges was recorded through other comprehensive loss (“OCI”) in the Condensed Consolidated Statements of Comprehensive Loss. Unrealized gains and losses in accumulated other comprehensive loss (“AOCI”) are reclassified to interest expense as interest payments are made on our variable rate debt. On February 29, 2020, our interest rate swaps were ineffective due to the decrease in interest rates and all subsequent changes in fair value were recognized through interest expense in the Condensed Consolidated Statements of Operations.

The following tables present the effect of our interest rate swaps, net of tax, in the Condensed Consolidated Statements of Comprehensive Loss and Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019 ($ in thousands):


	2020		2019
AOCI from our cash flow hedges as of January 1	$	20,164	$	—
Change in fair value	16,956		5,834
Reclassification from AOCI to interest expense	(1,908)		24
OCI related to our cash flow hedges for the three months ended March 31	15,048		5,858
Change in fair value	—		14,648
Reclassification from AOCI to interest expense	(2,926)		136
OCI related to our cash flow hedges for the three months ended June 30	(2,926)		14,784
Change in fair value	—		4,912
Reclassification from AOCI to interest expense (1)	(2,958)		(324)
OCI related to our cash flow hedges for the three months ended September 30	(2,958)		4,588
AOCI from our cash flow hedges as of September 30	$	29,328	$	25,230

________

(1) As of September 30, 2020, the total amount expected to be reclassified from AOCI to interest expense during the next twelve months is $11.7 million.


Derivative Liabilities for Ineffective Hedges	Financial Statement Classification	Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019
Interest rate swaps (1)	Interest expense	$	3,803	$	—	$	22,306	$	2,715

________

(1) Includes the change in fair value of our interest rate swaps and the cash interest paid for the monthly settlements of the derivative.

The following tables present the effect of our interest rate swaps in the Condensed Consolidated Balance Sheet as of September 30, 2020 and December 31, 2019 ($ in thousands):


Derivative Liabilities for Effective Hedges	Financial Statement Classification	As of September 30,		As of December 31,
		2020		2019
Interest rate swaps	Derivative financial instruments	$	—	$	31,932


Derivative Liabilities for Ineffective Hedges	Financial Statement Classification	As of September 30,		As of December 31,
		2020		2019
Interest rate swaps	Derivative financial instruments	$	50,832	$	—

Derivative financial instruments expose us to credit risk in the event of non-performance by the counterparty under the terms of the interest rate swaps. We incorporate these counterparty credit risks in our fair value measurements (see Note 13) and believe we minimize this credit risk by transacting with major creditworthy financial institutions.