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Derivative and Hedging Activities
12 Months Ended
Dec. 31, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative and Hedging Activities Derivative and Hedging Activities
 
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company has historically used interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The changes in the fair value of derivatives that are designated as cash flow hedges are recorded in accumulated other comprehensive income (“AOCI”) and are subsequently reclassified into earnings during the period in which the hedged forecasted transaction affects earnings.

The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivative. This analysis reflects the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, including interest rate curves, and implied volatilities. The fair value of interest rate swaps is determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. 

The Company incorporated credit valuation adjustments to appropriately reflect both its own non-performance risk and the respective counterparties’ non-performance risk in the fair value measurements. In adjusting the fair value of its derivative contract for the effect of non-performance risk, the Company considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
 
Although the Company determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilized Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivative valuation in its entirety was classified in Level 2 of the fair value hierarchy.

The Company’s four interest rate swaps that effectively fixed the interest rate on the Company’s term loan matured effective August 31, 2022.
 
The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):
 
 Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)Total
December 31, 2021:    
Liabilities
Derivative financial instruments$— $(3,447)$— $(3,447)

Amounts paid, or received, to cash settle interest rate derivatives prior to their maturity date are recorded in AOCI at the cash settlement amount, and will be reclassified to interest expense as interest expense is recognized on the hedged debt. During the next twelve months, the Company estimates that approximately $15,000 will be reclassified as a non-cash decrease to interest expense related to the Company’s previously cash-settled swap arrangements.
 
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the balance sheet as of December 31, 2022 and December 31, 2021, respectively (in thousands):

Derivatives designed as hedging instrumentsBalance sheet locationDecember 31, 2022 Fair ValueDecember 31, 2021 Fair Value
Interest rate productsOther liabilities$— $(3,447)

Derivatives in Cash Flow Hedging Relationships
 
The table below details the location in the financial statements of the gain or loss recognized on interest rate derivatives designated as cash flow hedges for the years ended December 31, 2022, 2021, and 2020, respectively (in thousands):

Year Ended December 31,
 202220212020
Amount of gain (loss) recognized in OCI on derivatives$1,104 $216 $(9,925)
Amount of loss reclassified from AOCI into interest$2,286 $5,894 $4,572