Quarterly report pursuant to Section 13 or 15(d)

Derivatives

v3.20.1
Derivatives
3 Months Ended
Mar. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives Derivatives
 
Interest Rate Cap

In November of 2019, the Company entered into an interest rate cap agreement to reduce the interest rate risk inherent in the Company's variable rate Takeback Loan Facility. The interest rate cap agreement provides the right to receive cash if the reference interest rate rises above a contractual rate. The premium paid for the interest rate cap agreement was $3,020,000, which was the initial fair value of the interest rate cap recorded on the condensed consolidated balance sheets.

The critical terms of the interest rate cap were designed to mirror the terms of the Company's variable rate Takeback Loan Facility and are highly effective at offsetting the cash flows being hedged. The Company designated the interest rate cap as a cash flow hedge of the variability of the LIBOR-based interest payments on $750,000,000 of principal of the Takeback Loan Facility. The interest rate cap agreement will expire on December 31, 2023. The effective portion of the interest rate cap's change in fair value is recorded in Accumulated other comprehensive income (loss). Any ineffective portions of the interest rate cap's change in fair value are recognized in current earnings in Interest expense.

During the Successor Company three months ended March 31, 2020, interest expense of $184,000 was reclassified from Accumulated other comprehensive income (loss) to Interest expense on the condensed consolidated statements of operations and comprehensive income (loss). The Company expects to similarly reclassify approximately $737,000 from Accumulated other comprehensive income (loss) to Interest expense on the condensed consolidated statements of operations and comprehensive income (loss) in the next twelve months.

The fair value of the interest rate cap was $962,000 at March 31, 2020, and constituted an asset of the Company. The fair value of the interest rate cap is included in non-current Other assets, net on the condensed consolidated balance sheets based on the maturity date of the derivative instrument. See note 7, Fair Value Measurements for related fair value disclosures.
Interest Rate Swaps

Historically, the Company entered into interest rate swap agreements (all interest rate swap agreements are collectively referred to as the "Swaps") to reduce the interest rate risk inherent in the Company's prior debt agreements.

Prior to December of 2018, all of the Swaps were designated and qualified as cash flow hedging instruments, with the effective portion of the Swaps' change in fair value recorded in Accumulated other comprehensive income (loss). However, in December of 2018, given the potential for changes in the Company's future expected interest payments that these Swaps hedged, all of the Swaps no longer qualified as a cash flow hedge and were de-designated as such. Before the de-designation, changes in the fair value of the Swaps were recognized in Accumulated other comprehensive income (loss) and were reclassified to Interest expense when the hedged interest payments on the underlying debt were recognized. After the de-designation, changes in the fair value of the Swaps are recognized in Unrealized loss on derivative financial instruments on the condensed consolidated statements of operations and comprehensive income (loss). For the Predecessor Company three months ended March 31, 2019, the Company recorded an Unrealized loss on derivative financial instruments of $7,773,000. On April 30, 2019, the various counterparties and the Company agreed to settle and terminate all of the outstanding interest rate swap agreements, which required us to pay $8,767,000 in termination amount to certain counterparties and required a certain counterparty to pay $6,540,000 in termination amount to us, resulting in a Realized net loss on derivative financial instruments of $2,227,000. There are no Swaps outstanding as of March 31, 2020.

The impact of the derivatives on the condensed consolidated financial statements is depicted below (amounts in thousands):
Successor Company Predecessor Company
Three Months Ended March 31, Three Months Ended March 31,
2020 2019
Effective portion of loss recognized in Accumulated other comprehensive income (loss)
$ (1,997)   $ —   
Interest cost of interest rate cap reclassified into Net loss (a)
$ 184    $ —   
Effective portion of loss reclassified from Accumulated other comprehensive income (loss) into Net income (loss) (a)
$ —    $ (468)  

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