Derivatives Instruments

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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 $200.0 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 paid a fixed rate of 2.56% to the counterparty. On September 25, 2019, the Company entered into two new interest rate swaps, one that lowered the rate on the $200.0 million notional amount to 2.31% and extended the maturity for one year and the second on a new $50.0 million notional amount to 1.50%. Both interest rate swaps have matching maturities of June 1, 2023. The Company was able to apply hedge accounting to both of these swap arrangements.

On September 25, 2019, the Company began applying hedge accounting to the two new interest rate derivatives. Changes in fair value are recorded to interest expense. The fair value of the hedging instrument is a liability of $5.0 million consisting of a long-term liability of $4.6 million, a short-term liability of $0.4 million as of December 31, 2019 with corresponding charges recorded as a component of interest expense and other comprehensive income, as discussed below. The Company recognized a loss of $(6.6) million in interest expense in the consolidated statement of operations and comprehensive income (loss) for the period of June 3, 2019 through December 31, 2019. No gains or losses were recognized prior to June 3, 2019.

Hedges of Interest Rate Risk

The Company enters into interest rate swap contracts to manage variability in the amount of our known or expected cash payments related to portions of our variable rate debt. On January 31, 2019, the Company entered into a business combination contingent interest rate swap in a notional amount of $200.0 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 June 3, 2023. The interest rate swap economically converts a portion of the variable rate debt to fixed rate debt. The Company received floating interest payments monthly based on one-month LIBOR, and paid a fixed rate of 2.56% to the counterparty.

Prior to September 25, 2019, the Company did not apply hedge accounting to the interest rate derivative. Changes in fair value were recorded to interest expense. On September 25, 2019, the Company amended the existing interest rate swap for the notional amount of $200.0 million to extend its term and concurrently entered into an incremental $50.0 million notional swap with similar terms. As of December 31, 2019, our interest rate swap contracts have a combined notional of $250.0 million and terminate on June 1, 2023. The risk management objective in using interest rate swaps is to add stability to interest expense and to manage our exposure to interest rate movements. Beginning in September 2019, our interest rate swaps were designated as cash flow hedges. 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 contract agreements without exchange of the underlying notional amount. Realized gains or losses from interest rate swaps are recorded in earnings, as a component of interest expense, net.

As of December 31, 2019, unrealized gains of $1.7 million were recorded to other comprehensive loss, and zero was reclassified out of accumulated other comprehensive loss to interest expense as no payments were made to the swap counterparty. No amounts related to cash flow hedges were recognized in other comprehensive loss prior to September 25, 2019, as the Company had not previously designated its interest rate swaps as hedges. As of December 31, the Company does not anticipate having to reclassify any of the net hedging gains from accumulated other comprehensive loss into earnings during the next 12 months to offset the variability of the hedged items during this period.

The following table summarizes the total fair value of derivative assets and liabilities as of December 31, 2019. The Company had no derivative positions as of December 31, 2018:



	Fair Value as of December 31, 2019
(in millions)	Other Assets		Current Liabilities		Non-current Liabilities
Interest rate swaps not designated as accounting hedge	$	—	$	—	$	—
Interest rate swaps designated as accounting hedge	—		0.4		4.6
Total derivatives	$	—	$	0.4	$	4.6

The following table presents the effect of our derivative financial instruments on our consolidated statement of operations. The income effects of our derivative activities are reflected in Interest expense. There were no gains or losses recorded prior to June 3, 2019 (the Predecessor Period):



(in millions)	June 3, 2019 through December 31, 2019
Total interest expense presented in the statement of operations	$	27.3
Derivatives designated as hedging instruments:
Cash flow hedges- interest rate swaps	$	(0.1	)
Derivatives not designated as hedging instruments:
Interest rate Swap	$	(6.5	)