On January 4, 2023, we entered into an interest rate cap agreement with an effective date of January 31, 2023. The interest rate cap manages our exposure to interest rate increases on $300 million in borrowings under the Term Loan B and provides us with the right to receive payment if the one-month SOFR exceeds 5.0% (“strike rate”). Beginning on February 28, 2023, we pay a fixed monthly deferred premium based on an annual rate of 0.3335% for the interest rate cap, which matures on January 31, 2025.

We designated the interest rate cap as a cash flow hedge designed to hedge the variability of the SOFR-based interest payments on the Term Loan B. Changes in the fair value of the interest rate cap are recorded in “Accumulated other comprehensive income (loss)” (“AOCI”) in the Condensed Consolidated Balance Sheets. Amounts accumulated in AOCI are reclassified to “Interest expense, net” in the Condensed Consolidated Statements of Operations when the hedged item affects earnings. We recognized $0.1 million of unrealized losses in AOCI during the three months ended September 30, 2023 and unrealized gains of $0.3 million during the nine months ended September 30, 2023. We reclassified approximately $0.3 million to Interest expense, net, during the three months ended September 30, 2023 and $0.4 million during the nine months ended September 30, 2023. We estimate that $1.2 million will be reclassified to earnings within the next 12 months.

The fair value of the interest rate cap is as follows:


		September 30,		December 31,
(in thousands)	Classification	2023		2022
Derivatives designated as hedging instruments
Interest rate cap - short-term	Other current assets	$	421	$	—
Interest rate cap - long-term	Other investments and assets		136		—
Total derivatives designated as hedging instruments		$	557	$	—

The fair value of the interest rate cap is determined using widely accepted valuation techniques and reflects the contractual terms of the interest rate cap including the period to maturity. While there are no quoted prices in active markets, our calculation uses observable market-based inputs, including interest rate curves. The interest rate cap is classified as Level 2 within the fair value hierarchy. Refer to Note 14 – Fair Value Measurements for related fair value disclosures.