Derivatives Instruments

6 Months Ended

Jun. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Derivative Instruments

The Company uses derivatives as part of the normal business operations to manage its exposure to fluctuations in interest rates associated with variable interest rate debt. The Company has established policies and procedures that govern the risk management of these exposures. The primary objective in managing these exposures is to decrease the volatility of cash flows affected by changes in interest rates.

Interest Rate Swap

On January 31, 2019, the Company entered into a business combination contingent interest rate swap in a notional amount of $200 million to hedge part of the floating interest rate exposure under the First Lien Dollar Term Facility. The interest rate swap became effective on the Closing of the Ranpak Business Combination and will terminate on the third anniversary of the Closing. The interest rate swap economically converts a portion of the variable rate debt to fixed rate debt. The Company receives floating interest payments monthly based on one-month LIBOR, and pays a fixed rate of 2.5634% to the counterparty.

The Company does not apply hedge accounting to the interest rate derivative. Changes in fair value are recorded to interest expense. The fair value of the hedging instrument is a liability of $5.4 million consisting of a long-term liability of $5.0 million, a short-term liability of $0.4 million as of June 30, 2019 with corresponding charges recorded as a component of interest expense. The Company recognized a loss of $(5.4) million in interest expense in the Unaudited Condensed Consolidated Statement of Operations and Comprehensive Loss for the period of June 3, 2019 through June 30, 2019. No gains or losses were recognized prior to June 3, 2019.