DERIVATIVE FINANCIAL INSTRUMENT AND HEDGING ACTIVITY

12 Months Ended

Dec. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENT AND HEDGING ACTIVITY

DERIVATIVE FINANCIAL INSTRUMENT AND HEDGING ACTIVITY

In April 2020, the Company entered into an interest rate swap with Citizens Bank, N.A. to manage exposure to changes in LIBOR-based interest rates (or alternate benchmark rate as defined in the Credit Agreement) underlying total borrowings under term facilities related to the Prior Credit Agreement. The interest rate swap matures in December 2026. Concurrent with the termination of the Prior Credit Agreement and entry into the Credit Agreement with Truist Bank, the interest rate swap with a notional value of $168.6 million at origin on November 19, 2021 was novated and Truist Bank became the new counterparty.

As described further below, the Company amended its Credit Agreement to transition from LIBOR to SOFR due to the cessation of LIBOR, and accordingly, the interest rate swap transitioned from LIBOR to SOFR. The swap is used to manage changes in SOFR-based interest rates underlying a portion of the borrowing under the Term Facility.

The interest rate swap provides an effective fixed interest rate of 2.26% and has been designated as an effective cash flow hedge and therefore qualifies for hedge accounting. The notional amount of the interest rate swap was $139.4 million and $151.5 million as of December 31, 2023 and 2022, respectively, and decreased quarterly by approximately $4.0 million until December 2023, after which it remains static until maturity in December 2026. As of December 31, 2023, the fair value of the interest rate swap asset was recorded in other non-current assets in the consolidated balance sheets was $6.2 million. As of December 31, 2023, $8.9 million was recorded in accumulated other comprehensive income (loss) in the consolidated balance sheets.

During the year ended December 31, 2023, the change in fair value of the interest rate swaps was a loss of $3.7 million. During the year ended December 31, 2023, losses on the interest rate swap of $3.4 million were recorded in other comprehensive income (loss), net of tax. Differences between the hedged SOFR rate and the fixed rate are recorded as interest expense in the same period that the related interest is recorded for the Term Facility based on the SOFR rate. In the years ended December 31, 2023 and 2022, $2.6 million and $2.3 million, respectively, of interest expense was recognized in relation to the interest rate swaps. Included in these amounts for the years ended December 31, 2023 and 2022 are reclassifications out of accumulated other comprehensive income (loss) of $2.8 million in expense, related to terminated and de-designated cash flow hedges.

In conjunction with the amendment of the Credit Agreement (Note 5), the Company’s derivative positions automatically transitioned to SOFR, the designated fallback terms, as determined by the International Swaps and Derivatives Association on August 1, 2023. Concurrently, the Company updated its hedge documentation to reflect the change of the benchmark index, which changed solely as a result of reference rate reform. Under ASC 848, Reference Rate Reform, hedge accounting may continue without de-designation if certain criteria are met. For cash flow hedges in which the designated hedged risk is LIBOR (or another rate that is expected to be discontinued), the guidance allows an entity to assert that it remains probable that the hedged forecasted transaction will occur. The Company applied the optional expedient within ASC 848 to conclude the updates to the hedge relationship due to reference rate reform did not have a material impact on the Company's consolidated financial statements.