DERIVATIVE INSTRUMENTS

12 Months Ended

Dec. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Our objective in using interest rate derivatives is to add stability to interest expense and to manage our exposure to interest rate fluctuations. To accomplish this objective, we primarily use interest rate swap contracts to fix the variable rate interest debt.

The ineffective portion of a hedging instrument is not recognized currently in earnings or disclosed. Changes in the fair value of cash flow hedges are recorded in accumulated other comprehensive income and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income for our interest rate swaps will be reclassified to interest expense as interest payments are made on our term loan and line of credit. During the next 12 months, we estimate an additional $1.5 million will be reclassified as an increase to interest expense.

At December 31, 2021, we had one interest rate swap contract designated as a cash flow hedge of interest rate risk with a total notional amount of $75.0 million to fix the interest rate on the line of credit. We also had one interest rate swap with a notional amount of $70.0 million that is not effective until January 31, 2023 and was not designated as a hedge in a qualifying hedging relationship.

At December 31, 2020, we had three interest rate swap contracts designated as cash flow hedges of interest rate risk with a total notion amount of $195.0 million and one additional interest rate swap that becomes effective on January 31, 2023, with a

notional amount of $70.0 million. These interest rate swaps fixed the interest on the term loans and a portion of the line of credit.

In September 2021, we paid $3.8 million to terminate our $50.0 million interest rate swap and our $70.0 million interest rate swap in connection with the pay down of our term loans (see Note 6 - Debt for additional details). We accelerated the reclassification of a $5.4 million loss from OCI into other income loss in Consolidated Statements of Operations as a result of the hedged transactions becoming probable not to occur.

Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements. Changes in fair value of derivatives not designated in hedging relationships are recorded directly into earnings within other income loss in the Consolidated Statements of Operations. For the year ended December 31, 2021, we recorded a gain of $419,000 related to the interest rate swap not designated in a hedging relationship. As of December 31, 2020, we did not have any outstanding interest rate hedges that were not designated as hedges in a qualifying hedging relationship.

The fair value of our derivative financial instruments as well as their classification on our Consolidated Balance Sheets as of December 31, 2021 and 2020 is detailed below.


	(in thousands)
			December 31, 2021		December 31, 2020
		Balance Sheet Location	Fair Value		Fair Value
Total derivative instruments designated as hedging instruments - interest rate swaps		Accounts Payable and Accrued Expenses	$	4,610	$	15,905
Total derivative instruments not designated as hedging instruments - interest rate swaps		Accounts Payable and Accrued Expenses	$	1,097	$	—

The effect of the Company's derivative financial instruments on the consolidated statements of operations as of December 31, 2021, 2020, and 2019 is detailed below.


	(in thousands)
	Gain (Loss) Recognized in OCI						Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Gain (Loss) Reclassified from Accumulated OCI into Income
	Year Ended December 31,							Year Ended December 31,
	2021		2020		2019			2021		2020		2019
Total derivatives in cash flow hedging relationships - interest rate swaps	$	2,383	$	(11,068)	$	(7,040)	Interest expense	$	(9,087)	$	(2,770)	$	(289)

We have agreements with each of our derivative counterparties that contain a provision where if we either default or are capable of being declared in default on any of our indebtedness, then we could also be declared in default on our derivative obligations.