Annual report pursuant to Section 13 and 15(d)

Derivatives

v3.3.1.900
Derivatives
12 Months Ended
Dec. 31, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives
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 10, Fair Value Measurements, for additional information about the credit valuation adjustments.

At December 31, 2015, derivative financial instruments include seven interest rate swaps with a fair value $13,470,000, that constitute a liability of the Company.  At December 31, 2014, derivative financial instruments include one interest rate swap with a fair value of $1,123,000, that constitute an asset of the Company and three interest rate swaps with a fair value $5,780,000 that constitute a liability of the Company.   The Swaps are included in other assets, net and derivative financial instruments on the consolidated balance sheets. As of December 31, 2015 and 2014 no amounts were offset for certain derivatives' fair value that were recognized under a master netting agreement with the same counterparty.
 
The objective of the swap derivative instruments was to reduce the risk associated with the Company's term loan variable interest rates.  In effect, the swap derivative instruments convert variable interest rates into fixed interest rates on the Company’s term loan borrowings. 

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 $7,092,000.

The Swaps’ outstanding notional balance as of December 31, 2015 and terms are noted below:
Notional
 
Effective Date
 
Maturity Date
 
Fixed
Rate Paid
 
Variable Rate Received
$
529,375,000

 
March 28, 2013
 
March 23, 2018
 
1.884%
 
3 mo. USD-LIBOR-BBA, subject to a 1.00% floor (a)
140,287,500

 
March 28, 2013
 
March 23, 2018
 
1.384%
 
3 mo. USD-LIBOR-BBA, subject to a 1.00% floor (a)
109,673,367

 
September 30, 2013
 
March 23, 2018
 
1.959%
 
3 mo. USD-LIBOR-BBA, subject to a 1.00% floor
109,673,367

 
September 30, 2013
 
March 23, 2018
 
1.850%
 
3 mo. USD-LIBOR-BBA, subject to a 1.00% floor
191,475,002

 
March 23, 2018
 
April 9, 2022
 
2.924%
 
3 mo. USD-LIBOR-BBA, subject to a 1.00% floor
250,000,000

 
March 23, 2018
 
April 9, 2022
 
2.810%
 
3 mo. USD-LIBOR-BBA, subject to a 1.00% floor
50,000,000

 
March 23, 2018
 
April 9, 2022
 
2.504%
 
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, which were entered into in March 2012 (the "Existing Swap Agreements") (as amended, 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 are recognized in Interest expense over the remaining life of the Amended Swaps.
 
The impact of the derivatives designated as cash flow hedges on the consolidated financial statements is depicted below (amounts in thousands):
 
 
Year Ended December 31,
 
 
2015
 
2014
 
2013
Effective portion of gain (loss) recognized in Accumulated other comprehensive income (loss)
 
$
(16,041
)
 
(12,560
)
 
7,014

Effective portion of loss reclassified from Accumulated other comprehensive income (loss) into Net loss (a)
 
$
(7,300
)
 
(7,681
)
 
(5,303
)
Ineffective portion of amount of gain (loss) recognized into Net loss on interest rate swaps (a)
 
$
(119
)
 
(46
)
 
24

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