DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

3 Months Ended

Mar. 31, 2016

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

11. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

Hedges of Interest Rate Risk

        In order to manage financing costs and interest rate exposure related to our $385,000,000 unsecured term loan facility (see Note 7), on August 13, 2015, we entered into interest rate swap agreements with multiple counterparties. These swap agreements became effective on November 2, 2015. Each of our interest rate swap agreements meets the criteria for cash flow hedge accounting treatment and we have designated the interest rate swap agreements as cash flow hedges of the risk of variability attributable to changes in the one-month LIBOR on the term loan facility. Accordingly, the interest rate swaps are recorded on the consolidated balance sheets at fair value and the changes in the fair value of the swaps are recorded in OCI and reclassified to earnings as an adjustment to interest expense as interest becomes receivable or payable (see Note 2). We do not expect any significant losses from counterparty defaults related to our swap agreements.

Summary of Derivatives

        The following table sets forth the key terms of our interest rate swap contracts:

Number of Interest Rate Swaps(1)(2)	Total Notional Amount		Fixed Rates	Floating Rate Index	Effective Date		Expiration Date
	(in thousands)
10	$	385,000	1.559% - 1.569%	One-Month LIBOR		11/2/2015		5/8/2020

(1)	See Note 12 for our fair value disclosures.
(2)	Our interest rate swaps are not subject to master netting arrangements.

        These swaps hedge the future cash flows of interest payments on our $385,000,000 unsecured term loan facility by fixing the rate until May 8, 2020 at a weighted average rate of 1.563% plus the credit spread, which was 1.60% at March 31, 2016 and December 31, 2015, or an all-in rate of 3.16%.

Credit-Risk-Related Contingent Features

        Each of our interest rate swap agreements contains a provision under which we could also be declared in default under such agreements if we default on the term loan facility. As of March 31, 2016 and December 31, 2015, there have been no events of default under our interest rate swap agreements.

Impact of Hedges on AOCI and Consolidated Statements of Operations

        The changes in the balance of each component of AOCI related to our interest rate swaps designated as cash flow hedges are as follows:

	Three Months Ended March 31,
	2016			2015
	(in thousands)
Accumulated other comprehensive income (loss), at beginning of period	$	(2,519	)	$	—
Other comprehensive income (loss) before reclassifications		(9,033	)		—
Amounts reclassified from accumulated other comprehensive income (loss)(1)		1,108			—
Net current period other comprehensive income (loss)		(7,925	)		—
Accumulated other comprehensive income (loss), at end of period	$	(10,444	)	$	—

(1)           The amounts from AOCI are reclassified as an increase to interest expense in the statements of operations.

Future Reclassifications from AOCI

        We estimate that $4,334,000 related to our derivatives designated as cash flow hedges will be reclassified out of AOCI as an increase to interest expense during the next twelve months.