Derivative Financial Instruments

Cash Flow Hedges of Interest Rate Risk

The Company's objective in using interest rate derivatives is to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses 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 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 effective portion of changes in the fair value of derivatives, designated and that qualify as cash flow hedges, is recorded in accumulated other comprehensive (income) loss on our consolidated balance sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.

Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company's variable-rate debt.

As of June 30, 2017, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (dollars in thousands):



Interest Rate Derivative	Notional Amount		Fixed Rate		Maturity
Interest rate swap	$	1,475	5.25	%	April 1, 2022
Interest rate swap	26,400		3.61	%	May 6, 2023
Interest rate swap	27,000		4.05	%	September 19, 2026

The table below presents the fair value of the Company’s derivative financial instruments as well as its classification on the consolidated balance sheets as of the dates indicated (amounts in thousands):



Derivatives as of:
June 30, 2017			September 30, 2016
Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Other Assets	$	1,489	Other Assets	$	—
Accounts payable and accrued liabilities	$	17	Accounts payable and accrued liabiltities	$	1,602

As of June 30, 2017, the Company did not have any derivative instruments that were considered to be ineffective and does not use derivative instruments for trading or speculative purposes.

The following table presents the effect of the Company’s interest rate swaps on the consolidated statements of comprehensive (loss) income for the dates indicated (dollars in thousands):



	Three Months Ended June 30,						Nine Months Ended June 30,
	2017			2016			2017			2016
Amount of gain recognized on derivative in Other Comprehensive Income (loss)	$	(309	)	$	(906	)	$	2,739		$	(935	)
Amount of gain (loss) reclassified from Accumulated Other Comprehensive Income (loss) into Interest Expense	$	(80	)	$	(50	)	$	(336	)	$	(65	)

No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from effectiveness testing on the Company's cash flow hedges during the three and nine months ended June 30, 2017 and June 30, 2016. The Company estimates an additional $126,000 will be reclassified from other comprehensive income (loss) as an increase to interest expense over the next twelve months.

Credit-risk-related Contingent Features

The agreement between the Company and its derivative counterparties provides that if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, the Company could be declared in default on its derivative obligations.

As of June 30, 2017, the fair value of the derivative in a net liability position, which includes accrued interest, but excludes any adjustment for nonperformance risk related to these agreement, was $17,000. As of June 30, 2017, the Company has not posted any collateral related to these agreements. If the Company had been in breach of these agreements at June 30, 2017, it could have been required to settle its obligations thereunder at its termination value of $17,000.