Derivatives

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosures [Line Items]

Derivatives

Derivatives

Interest Rate Swap

Derivative Instruments and Hedging Activities Disclosures [Line Items]

Derivatives

NSM Interest Rate Swap

On May 11, 2018, NSM entered into the NSM Bank Facility. Interest on the NSM Bank Facility accrues at a floating interest rate equal to the three month LIBOR or the Prime Rate, as published by the Wall Street Journal plus, in each case, an applicable margin. The margin over LIBOR may vary between 4.25% and 4.75%, and the margin over the Prime Rate may vary between 3.25% and 3.75%, in each case, depending on the consolidated total leverage ratio of the borrower.

On June 15, 2018, NSM entered into an interest rate swap agreement to hedge its exposure to interest rate risk on $151.0 million of its variable rate term loans. Under the terms of the swap agreement, NSM pays a fixed rate of 2.97% and receives a variable rate, which is reset monthly, based on the then-current LIBOR. As of March 31, 2020, the variable rate received by NSM under the swap agreement was 1.58%. Over the term of the swap, the notional amount decreases in accordance with the principal repayments NSM expects to make on its term loans. As of March 31, 2020, the interest rate, including the effect of the swap, for the outstanding term loans of $148.4 million that are hedged by the swap was 7.47%, excluding the effect of debt issuance costs. NSM’s obligations under the swap are secured by the same collateral securing the NSM Bank Facility on a pari passu basis. NSM does not currently hold any collateral deposits from or provide any collateral deposits to the swap counterparty.

NSM evaluated the effectiveness of the swap to hedge its interest rate risk associated with its variable rate debt and concluded at the swap inception date that the swap was highly effective in hedging that risk. NSM evaluates the effectiveness of the hedging relationship on an ongoing basis.

For the three months ended March 31, 2020 and 2019, White Mountains recognized net interest expense of $0.5 million and $0.2 million for the periodic net settlement payments on the swap. As of March 31, 2020 and December 31, 2019, the estimated fair value of the swap and the accrual of the periodic net settlement payments recorded in other liabilities was $9.8 million and $6.6 million. There was no ineffectiveness in the hedge for the three month periods ended March 31, 2020 or March 31, 2019. For the three months ended March 31, 2020 and 2019, the $(3.2) million and $(1.9) million change in the fair value of the swap is included within White Mountains’s accumulated other comprehensive income (loss).