Quarterly report pursuant to Section 13 or 15(d)

Derivatives

v2.4.0.8
Derivatives
3 Months Ended
Mar. 31, 2014
Derivatives  
Derivatives

(6)           Derivatives

 

The Company utilizes interest rate swap agreements to reduce the interest rate risk inherent in the Company’s variable rate Credit Facility term loans.  The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatility. The Company incorporates credit valuation adjustments to appropriately reflect the respective counterparty’s nonperformance risk in the fair value measurements.  See note 7, Fair Value Measurements, for additional information about the credit valuation adjustments.

 

The Swaps’ outstanding notional balance as of March 31, 2014 and terms are noted below:

 

Notional

 

Effective Date

 

Fixed
Rate Paid

 

Variable Rate Received

 

 

 

 

 

 

 

 

 

$

539,000,000

 

March 28, 2013

 

1.884

%

3 mo. USD-LIBOR-BBA, subject to a 1.00% floor (a)

 

142,825,000

 

March 28, 2013

 

1.384

%

3 mo. USD-LIBOR-BBA, subject to a 1.00% floor (a)

 

111,652,010

 

September 30, 2013

 

1.959

%

3 mo. USD-LIBOR-BBA, subject to a 1.00% floor

 

111,652,010

 

September 30, 2013

 

1.850

%

3 mo. USD-LIBOR-BBA, subject to a 1.00% floor

 

 

(a)         On March 25, 2013, the Company negotiated amendments to the terms of these interest rate swap agreements to coincide with the Repricing (the “Amended Swaps”).  The Amended Swaps are held with the same counterparties as the Existing Swap Agreements.  Upon entering into the Amended Swaps, the Company simultaneously dedesignated the Existing Swap Agreements and redesignated the Amended Swaps as cash flow hedges for the underlying change in the swap terms.  The amounts previously recognized in Accumulated other comprehensive loss relating to the dedesignation will be recognized in Interest expense over the remaining life of the Amended Swaps.

 

All of the Swaps are designated and qualify as cash flow hedging instruments, with the effective portion of the Swaps change in fair value recorded in Accumulated other comprehensive income (loss).  Any ineffective portions of the Swaps change in fair value are recognized in current earnings in Interest expense.  Changes in the fair value of the Swaps recognized in Accumulated other comprehensive income (loss) are reclassified to Interest expense when the hedged interest payments on the underlying debt are recognized.  Amounts in Accumulated other comprehensive income (loss) expected to be recognized in Interest expense in the coming 12 months total approximately $6,054,000.

 

The impact of the derivatives designated as cash flow hedges on the condensed consolidated financial statements is depicted below (amounts in thousands):

 

 

 

For the three months ended March 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Effective portion of gain (loss) recognized in Accumulated other comprehensive income (loss)

 

$

(3,371

)

(909

)

 

 

 

 

 

 

Effective portion of gain (loss) reclassified from Accumulated other comprehensive income (loss) into Net income (a)

 

$

(1,700

)

(1,168

)

 

 

 

 

 

 

Ineffective portion of amount of gain (loss) recognized into Net income (loss) on interest rate swaps (a)

 

$

(1

)

19

 

 

(a)         Amounts are included in Interest expense in the unaudited condensed consolidated statements of operations and comprehensive income (loss).