DERIVATIVES AND HEDGING

12 Months Ended

Dec. 31, 2021

DERIVATIVES AND HEDGING [Abstract]

DERIVATIVES AND HEDGING

NOTE 15 – DERIVATIVES AND HEDGING

Cash Flow Hedges of Interest Rate Risk

We enter into interest rate swaps in order to maintain a capital structure containing targeted amounts of fixed and floating-rate debt and manage interest rate risk. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for our fixed-rate payments. These interest rate swap agreements are used to hedge the variable cash flows associated with variable-rate debt.

As a result of exposure to interest rate movements associated with the Amended 2015 Term Loan Facility, on December 16, 2015, we entered into various forward-starting interest rate swap arrangements, which effectively converted $250 million of our variable-rate debt based on one-month LIBOR to an aggregate fixed rate of approximately 3.80% effective December 30, 2016. The effective fixed rate achieved by the combination of the Amended 2015 Term Loan Facility and the interest rate swaps could fluctuate up by 55 basis points or down by 40 basis points based on future changes to our credit ratings. Each of these swaps had a scheduled maturity date of December 15, 2022. In October 2020, we terminated these $250.0 million of notional value interest rate swaps in connection with the repayment of the Amended 2015 Term Loan Facility and paid our swap counterparties $10.3 million which is recorded in loss on debt extinguishment on our Consolidated Statements of Operations.  

On March 27, 2020, we entered into five forward starting swaps totaling $400 million. We designated the forward starting swaps as cash flow hedges of interest rate risk associated with interest payments on a forecasted issuance of fixed rate long-term debt, initially expected to occur within the next five years. The swaps are effective on August 1, 2023 and expire on August 1, 2033 and were issued at a fixed rate of approximately 0.8675%. In March 2021, in conjunction with the issuance of $700 million aggregate principal amount of our 3.25% Senior Notes due 2033, we discontinued hedge accounting for these five forward starting swaps. Simultaneously, we re-designated these swaps in new cash flow hedging relationships of interest rate risk associated with interest payments on another forecasted issuance of long-term debt. We are hedging our exposure to the variability in future cash flows for forecasted transactions over a maximum period of 46 months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).

In addition to the forward swaps discussed above, we also assumed various interest rate swap contracts in connection with the MedEquities Merger on May 17, 2019. We designated the interest rate swap contracts as cash flow hedges of interest rate risk associated with the 2017 Omega OP Credit Agreement. The assumed interest rate swap contracts effectively converted $75 million of our 2017 Omega OP Credit Agreement to an aggregate fixed rate of approximately 3.29% through February 10, 2022. The effective fixed rate achieved by the combination of the 2017 Omega OP Credit Agreement and the interest rate swaps could fluctuate up by 55 basis points or down by 45 basis points based on future changes to our credit ratings. In October 2020, we terminated $25.0 million of notional value interest rate swaps in connection with the partial repayment and paid our swap counterparty $0.6 million which is recorded in loss on debt extinguishment on our Consolidated Statements of Operations. As of December 31, 2021, we have two interest rate swaps remaining with aggregate notional amounts of $50.0 million that are designated as hedges against our exposure to changes in interest payment cash flow fluctuations in the variable interest rates on the OP Term Loan. The OP Term Loan will be unhedged for the period after February 10, 2022 through its maturity on April 30, 2025.

Foreign Currency Forward Contracts and Debt Designated as Net Investment Hedges

We use debt denominated in GBP and foreign currency forward contracts to hedge a portion of our net investment in the U.K. against fluctuations in foreign exchange rates.

GBP denominated borrowings under the Sterling term loan and the 2017 Revolving Credit Facility, were previously used to hedge a portion of our investments in the U.K. against fluctuations in GBP against the USD. The GBP denominated borrowings under both debt instruments were deemed an effective hedge from issuance in May 2017 until the settlement of the Sterling term loan and the repayment of the GBP denominated borrowings under the 2017 Revolving Credit Facility in March 2021.

Concurrent with the settlement of the GBP denominated debt, we entered into four foreign currency forwards with notional amounts totaling £174.0 million, that mature on March 8, 2024, to hedge a portion of our net investments in the U.K., effectively replacing the terminated net investment hedge.

The location and the fair value of derivative instruments designated as hedges, at the respective balance sheet dates, were as follows:

	December 31,		December 31,
	2021		2020
Cash flow hedges:	(in thousands)
Other assets	$	32,849	$	17,005
Accrued expenses and other liabilities	$	96	$	955
Net investment hedges:
Other assets	$	6,754	$	—

The fair value of the interest rate swaps and foreign currency forwards is derived from observable market data such as yield curves and foreign exchange rates and represents a Level 2 measurement on the fair value hierarchy.