Derivatives

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Note 7. Derivatives

To reduce exposure to variability in expected future cash outflows on variable rate debt attributable to the changes in one-month LIBOR, the Company has historically entered into interest rate derivative instruments to economically offset a portion of this risk and may do so in the future. In June 2023, the Company transitioned the reference rate for its interest rate derivative agreements from one-month LIBOR to one-month SOFR.

As of September 30, 2023, the Company had the following outstanding derivatives that were not designated as a hedge in qualifying hedging relationships:


Product	Effective Date	Maturity Date	Notional	Rate
Interest rate collars (a)	June 30, 2023	February 29, 2024	$300.0 million	0.48% floor/1.47% cap
Interest rate swap (b)	June 30, 2023	February 28, 2026	$100.0 million	4.32%

(a)

In conjunction with the June 2023 transition of the reference rate from LIBOR to SOFR, the cap rate was reduced from 1.50% to 1.47%.

(b)

In conjunction with the June 2023 transition of the reference rate from LIBOR to SOFR, the fixed rate was reduced from 4.36% to 4.32%.

Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements; however, the Company has not elected to apply hedge accounting for these instruments.

The following is a summary of location and fair value of the financial positions recorded related to the derivative instruments (in thousands):


		Fair Value
Derivatives not designated as hedging instruments	Balance Sheet Location	As of September 30, 2023		As of December 31, 2022
Interest rate collars	Prepaid expenses and other current assets	$	4,917	$	11,570
Interest rate swap	Prepaid expenses and other current assets	$	982	$	—

The following is a summary of location and amount of gains recorded related to the derivative instruments (in thousands):


		Gain
		Three Months Ended September 30,				Nine Months Ended September 30,
Derivatives not designated as hedging instruments	Income Statement Location	2023		2022		2023		2022
Interest rate collars	Interest expense, net	$	109	$	3,998	$	878	$	11,376
Interest rate swap	Interest expense, net	$	857	$	—	$	1,323	$	—