The Company enters into interest rate swaps to hedge the future interest expense from variable rate debt and reduce the Company’s exposure to fluctuations in interest rates. On August 4, 2020, the Company, through its wholly owned subsidiary, SBA Senior Finance II, terminated its existing $1.95 billion cash flow hedge on a portion of its 2018 Term Loan in exchange for a payment of $176.2 million. On the same date, the Company entered into an interest rate swap for $1.95 billion of notional value accruing interest at one month LIBOR plus 175 basis points for a fixed rate of 1.874% per annum through the maturity date of the 2018 Term Loan. The Company designated this interest rate swap as a cash flow hedge as it is expected to be highly effective at offsetting changes in cash flows of the LIBOR based component interest payments of its 2018 Term Loan. As of September 30, 2020, the hedge remains highly effective; therefore, subsequent changes in the fair value are recorded in Accumulated other comprehensive loss, net. As of September 30, 2020, the interest rate swap has a fair value of $7.7 million.

On August 4, 2020, the Company also terminated its existing interest rate swaps, which were previously de-designated as cash flow hedges. There was no cash transferred in connection with the termination of these swaps. The Company reclassifies the fair value of its interest rate swaps recorded in Accumulated other comprehensive loss, net on their de-designation date to non-cash interest expense on the Consolidated Statements of Operations over their respective remaining terms which range from 2023 to 2025.

Accumulated other comprehensive loss, net includes an aggregate of $156.5 million and $42.1 million of accumulated derivative net losses as of September 30, 2020 and December 31, 2019, respectively.

Additionally, the Company is exposed to counterparty credit risk to the extent that a counterparty fails to meet the terms of a contract. The Company’s exposure is limited to the current value of the contract at the time the counterparty fails to perform.

The disclosures below provide additional information about the effects of these interest rate swaps on the Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Comprehensive Income (Loss), and Consolidated Statements of Shareholders’ Deficit. The cash flows associated with these activities are reported in Net cash provided by operating activities on the Consolidated Statements of Cash Flows with the exception of the termination of interest rate swaps which are recorded in Net cash used in financing activities.

The table below outlines the effects of the Company’s interest rate swaps on the Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019.



		Fair Value as of
	Balance Sheet	September 30,		December 31,
	Location	2020		2019

Derivatives Designated as Hedging Instruments		(in thousands)
Interest rate swap agreements in a fair value asset position	Other assets	$	7,750	$	—
Interest rate swap agreement in a fair value liability position	Other long-term liabilities	$	—	$	42,698
Derivatives Not Designated as Hedging Instruments
Interest rate swap agreements in a fair value asset position	Other assets	$	—	$	47,583
Interest rate swap agreements in a fair value liability position	Other long-term liabilities	$	—	$	47,583

The table below outlines the effects of the Company’s derivatives on the Consolidated Statements of Operations and Consolidated Statements of Shareholders’ Deficit for the three and nine month periods ended September 30, 2020 and 2019.



	For the three months				For the nine months
	ended September 30,				ended September 30,
	2020		2019		2020		2019

Cash Flow Hedge - Interest Rate Swap Agreement	(in thousands)
Change in fair value recorded in Accumulated other comprehensive loss, net	$	(7,252)	$	—	$	(132,460)	$	—
Amount recognized in Non-cash interest expense	$	(1,062)	$	—	$	(6,707)	$	—

Derivatives Not Designated as Hedges - Interest Rate Swap Agreements
Amount reclassified from Accumulated other comprehensive
loss, net into Non-cash interest expense	$	8,809	$	—	$	18,094	$	—
Change in fair value recorded in Other income (expense), net	$	(3,192)	$	—	$	—	$	—