Derivatives Instruments

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

We use derivatives as part of the normal business operations to manage our exposure to fluctuations in interest rates associated with variable interest rate debt and decrease the volatility of cash flows affected by changes in interest rates.

On January 31, 2019, the Company entered into a business combination contingent interest rate swap in a notional amount of $200.0 million (the "January 2019 Swap") to hedge part of the floating interest rate exposure under the First Lien Dollar Term Facility. The January 2019 Swap became effective on the Closing of the Ranpak Business Combination and will terminate on the third anniversary of the Closing on June 3, 2022. The January 2019 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 2.56% to the counterparty. Prior to September 25, 2019, the Company did not apply hedge accounting to the January 2019 Swap. Changes in fair value were recorded to interest expense.

On September 25, 2019, the Company amended the January 2019 Swap to extend its term to mature on June 1, 2023 and lower the rate to 2.31% (the "Amended January 2019 Swap"). We concurrently entered into an incremental $50.0 million notional swap at 1.5% and maturing on June 1, 2023 (the "September 2019 Swap").

Additionally, on September 25, 2019, we designated as cash flow hedges the Amended January 2019 Swap and the September 2019 Swap and applied hedge accounting. 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. Changes in fair value are recorded in accumulated other comprehensive income (loss) and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings.

On March 27, 2020, we entered into an interest rate swap that amended the Amended January 2019 Swap to a lower rate of 2.1% and extended the maturity to June 3, 2024 (the "Second Amended January 2019 Swap"). We designated the Second Amended January 2019 Swap as a cash flow hedge and applied hedge accounting.

We recognized a loss on the interest rate swaps of $0.3 million in interest expense in the unaudited condensed consolidated statement of operations and comprehensive income (loss) for the period ended March 31, 2020. No gains or losses were recognized in the three months ended March 31, 2019 (the Predecessor Period).

As of March 31, 2020, our interest rate swaps have a combined notional value of $250.0 million.

During the quarter ended March 31, 2020, unrealized losses of $7.8 million (net of tax of $2.3 million) were recorded to other comprehensive loss, and $0.3 million was reclassified out of accumulated other comprehensive loss to interest expense. As of March 31, 2020, we anticipate having to reclassify $0.4 million from accumulated other comprehensive income (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 March 31, 2020 and December 31, 2019:



	Fair Value as of March 31, 2020
	Other Assets		Current Liabilities		Non-current Liabilities
Interest rate swaps designated as accounting hedges	$	—	$	0.4	$	14.7
Total derivatives	$	—	$	0.4	$	14.7



	Fair Value as of December 31, 2019
	Other Assets		Current Liabilities		Non-current Liabilities
Interest rate swaps designated as accounting hedges	$	—	$	0.4	$	4.6
Total derivatives	$	—	$	0.4	$	4.6

The following table presents the effect of our derivative financial instruments on our unaudited condensed consolidated statement of operations. The income effects of our derivative activities are reflected in interest expense. There were no gains or losses recorded in the three months ended March 31, 2019 (the Predecessor Period):



	Successor
(in millions)	Three Months Ended March 31, 2020
Total interest expense presented in the statement of operations	$	6.2
Derivatives designated as hedging instruments:
Cash flow hedges- interest rate swaps	$	0.3