DERIVATIVES AND HEDGING ACTIVITIES

6 Months Ended

Jun. 30, 2019

Derivative Instruments And Hedging Activities Disclosure Abstract

Derivative Instruments And Hedging Activities Disclosure Text Block

8.DERIVATIVE AND HEDGING ACTIVITIES

The Company from time to time enters into derivative financial instruments, such as interest rate collar agreements (“Collars”), to manage its exposure to fluctuations in interest rates under the Company’s variable rate debt.

Accounting For Derivative Instruments And Hedging Activities

The Company recognizes at fair value all derivatives, whether designated in hedging relationships or not, in the balance sheet as either net assets or net liabilities. The accounting for changes in the fair value of a derivative, including certain derivative instruments embedded in other contracts, depends on the intended use of the derivative and the resulting designation. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and the hedged item are recognized in the statement of operations. If the derivative is designated as a cash flow hedge, changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the statement of operations when the hedged item affects net income. If a derivative does not qualify as a hedge, it is marked to fair value through the statement of operations. Any fees associated with these derivatives are amortized over their term. Cash flows from derivatives are classified in the statement of cash flows within the same category as the cash flows from the items subject to designated hedge or undesignated (economic) hedge relationships. Under these derivatives, the differentials to be received or paid are recognized as an adjustment to interest expense over the life of the contract. In the event the cash flow hedges are terminated early, any amount previously included in comprehensive income (loss) would be reclassified as interest expense to the statement of operations as the forecasted transaction settles.

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes ongoing effectiveness assessments by relating all derivatives that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company’s derivative activities, all of which are for purposes other than trading, are initiated within the guidelines of corporate risk-management policies. The Company reviews the correlation and effectiveness of its derivatives on a periodic basis.

The fair value of these derivatives is determined using observable market based inputs (a Level 2 measurement, as described in Note 12, Fair Value Of Financial Instruments) and the impact of credit risk on a derivative’s fair value (the creditworthiness of the Company’s counterparty for assets and the creditworthiness of the Company for liabilities).

Hedge Accounting Treatment

During the quarter ended June 30, 2019, the Company entered into a derivative rate hedging transaction in the aggregate notional amount of $560.0 million to manage interest rate risk on the Company’s variable rate debt. During the period of the hedging relationship, the beginning and ending balance of the Company’s variable rate debt was greater than the notional amount of the derivative rate hedging transaction. This transaction is tied to the one-month LIBOR interest rate. Under the Collar transaction, two separate agreements are established with an upper limit, or cap, and a lower limit, or floor, for the Company’s LIBOR borrowing rate. As of June 30, 2019, the Company had the following derivative outstanding, which was designated as a cash flow hedge that qualified for hedge accounting treatment:

Type						Fixed			Notional	Amount
Of	Notional		Effective			LIBOR		Expiration	Amount	After
Hedge	Amount		Date		Collar	Rate		Date	Decreases	Decrease
	(amounts									(amounts
	(in millions)									(in millions)
				[			]		Jun. 29, 2020	$	460.0
					Cap	2.75%			Jun. 28, 2021	$	340.0
Collar	$	560.0	Jun. 25, 2019		Floor	0.402%		Jun. 24, 2028	Jun. 28, 2022	$	220.0
									Jun. 28, 2023	$	90.0
Total	$	560.0

For the six months ended June 30, 2019, the Company recorded the net change in the fair value of this derivative as a loss of $0.2 million (net of a tax benefit of $0.1 million as of June 30, 2019) to the statement of comprehensive income (loss). The fair value of this derivative was determined using observable market-based inputs (a Level 2 measurement) and the impact of credit risk on a derivative’s fair value (the creditworthiness of the Company for liabilities). As of June 30, 2019, the fair value of these derivatives was a liability of $0.3 million, and is recorded as other long-term liabilities on the balance sheet. The Company does not expect to reclassify any portion of this amount to the statement of operations over the next twelve months.

During the year ended December 31, 2018, the Company had no derivatives that qualified for hedge accounting treatment.

The following table presents the accumulated derivative gain (loss) recorded in other comprehensive income (loss) as of June 30, 2019 and December 31, 2018:

	Accumulated Derivative Gain (Loss)
	June 30,		December 31,
Description	2019		2018
	(amounts in thousands)
Accumulated derivative unrealized gain (loss)	$	(224)	$	-

The following table presents the accumulated net derivative gain (loss) recorded in other comprehensive income (loss) for the six months ended June 30, 2019:

Other Comprehensive Income (Loss)
Net Change in Accumulated Derivative Unrealized Gain (Loss)					Net Amount of Accumulated Derivative Gain (Loss) Reclassified to the Consolidated Statement of Operations
Six Months Ended June 30,
2019		2018			2019	2018
(amounts in thousands)
$	(224)	$	-	$	-	$	-

The following table presents the accumulated net derivative gain (loss) recorded in other comprehensive income (loss) for the three months ended June 30, 2019:

Other Comprehensive Income (Loss)
Net Change in Accumulated Derivative Unrealized Gain (Loss)					Net Amount of Accumulated Derivative Gain (Loss) Reclassified to the Consolidated Statement of Operations
Three Months Ended June 30,
2019		2018			2019	2018
(amounts in thousands)
$	(224)	$	-	$	-	$	-