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Derivative Financial Instruments
 6 Months Ended
Jun. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments
14. Derivative Financial Instruments

Our objective and strategy in using interest rate derivatives is to manage exposure to interest rate movements, thereby minimizing the effect of interest rate changes and the effect they could have on future cash outflows (forecasted interest payments), on a forecasted issuance of long-term debt or, on outstanding floating rate debt. We typically enter into treasury locks and interest rate swaps to accomplish this objective. We do not enter into derivative instruments for speculative purposes. We recognize derivative instruments at fair value on a recurring basis on the Consolidated Balance Sheets and classify the derivatives within Level 2 of the fair value hierarchy. We adjust our Consolidated Balance Sheets on a quarterly basis to reflect the current fair market value of the derivative instruments.

As of June 30, 2023, we held four interest rate swap contracts, which have each been designated as cash flow hedges under ASC Topic 815, "Derivatives and Hedging." The risk being hedged is the interest rate risk related to forecasted debt issuance transactions and the benchmark interest rate used is the SOFR. Additionally, the interest rate risk related to outstanding floating rate debt is being hedged and the benchmark interest rate used is the SONIA Rate. The unrealized gains or losses on the derivative instruments are recorded in AOCI and are reclassified to Interest expense on the Consolidated Statements of Operations during the same period in which the hedged transaction affects earnings. We estimate that $22.3 million will be reclassified as a reduction to Interest expense over the next 12 months for all of our outstanding cash flow hedges. Cash flow from these derivative instruments is classified in the same category as the cash flow items being hedged on the Consolidated Statements of Cash Flows.

During the three months ended March 31, 2023, we entered into one interest rate swap contract to hedge variable rate borrowings of £100.0 million (equivalent to $126.6 million as of June 30, 2023). The interest rate swap locked in a total fixed rate, inclusive of spread, of 4.808% through the maturity date of April 7, 2025. We also entered into one forward starting interest rate swap contract with an aggregate notional value of $50.0 million to hedge interest rate risk associated with a potential future debt offering.

During the three months ended March 31, 2023, in connection with the 2033 Notes issuance, we settled two $100.0 million 10-year treasury rate lock contracts and one $50.0 million forward swap totaling $250.0 million and received a net settlement payment of $7.4 million. This lowered the effective interest rate on the 2033 Notes from 5.7% to 5.5%. As of the settlement date, the net accumulated gain included in AOCI is being reclassified into earnings as a reduction to Interest expense on a straight-line basis over the 10-year term of the hedged transaction.
The following table presents the gross fair value amounts of our derivative financial instruments and the associated notional amounts (in millions):

June 30, 2023December 31, 2022
Derivatives designated as cash flow hedgesNotional
Fair Value
of Assets(1)
Fair Value
of Liabilities
Notional
Fair Value
of Assets(1)
Fair Value
of Liabilities
Interest rate derivatives$683.1 $32.6 $— $733.6 $32.0 $— 
(1)Included within Other Assets, net on the Consolidated Balance Sheets.
Refer to Note 15, "Fair Value of Financial Instruments," for additional information related to the fair value methodology used for derivative financial instruments.

The following table presents the gains on derivatives in cash flow hedging relationships recognized in Other Comprehensive Income (in millions):

Three Months EndedSix Months Ended
Derivatives designated as cash flow hedgesJune 30, 2023June 30, 2022June 30, 2023June 30, 2022
Interest rate derivatives$19.0 $9.8 $10.4 $35.0 
The following table presents the amount of gains on derivative instruments reclassified from AOCI into earnings (in millions):

Financial Statement ClassificationThree Months EndedSix Months Ended
Derivatives designated as cash flow hedgesJune 30, 2023June 30, 2022June 30, 2023June 30, 2022
Interest rate derivativesInterest expense$3.2 $0.8 $5.5 $0.8