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Financial Instruments and Risk Management
 9 Months Ended
Sep. 30, 2021
Fair Value Disclosures [Abstract]  
Financial Instruments and Risk Management FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
In accordance with ASC 820, the Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. Observable inputs are from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. These tiers include the following:
Level 1 — inputs include observable unadjusted quoted prices in active markets for identical assets or liabilities
Level 2 — inputs include other than quoted prices in active markets that are either directly or indirectly observable
Level 3 — inputs include unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions
In determining fair value, the Company uses various valuation techniques and prioritizes the use of observable inputs. The availability of observable inputs varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded and other characteristics particular to the instrument. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants and the valuation does not require significant management judgment. For other financial instruments, pricing inputs are less observable in the marketplace and may require management judgment.
Recurring fair value measurements
We elected to apply fair value option accounting to the Tax Receivable Agreement. A summary of the Company's financial instruments recognized at fair value, and the fair value measurements used, follows:
Balance Sheet LocationTotalQuoted prices in active markets for identical assets (Level 1)Other observable inputs (Level 2)Unobservable inputs (Level 3)
September 30, 2021
Assets:
Interest rate swapsOther noncurrent assets$5.4 $— $5.4 $— 
Total assets$5.4 $— $5.4 $— 
Liabilities:
Interest rate swapsAccrued expenses and other liabilities$10.2 $— $10.2 $— 
Tax Receivable AgreementOther long-term liabilities162.0 — — 162.0 
Private warrantsWarrant liabilities140.0 — 140.0 — 
Total liabilities$312.2 $— $150.2 $162.0 
Balance Sheet LocationTotalQuoted prices in active markets for identical assets (Level 1)Other observable inputs (Level 2)Unobservable inputs (Level 3)
December 31, 2020
Liabilities:
Tax Receivable AgreementOther long-term liabilities$155.6 $— $— $155.6 
Interest rate swapsAccrued expenses and other liabilities10.3 — 10.3 — 
Interest rate swapsOther long-term liabilities22.5 — 22.5 — 
Public warrantsCurrent portion of warrant liabilities68.5 68.5 — — 
Private warrantsWarrant liabilities87.7 — 87.7 — 
Total liabilities$344.6 $68.5 $120.5 $155.6 

Tax Receivable Agreement — The Company has estimated total payments of approximately $191.5 on an undiscounted basis. The initial fair value of the estimated liability resulting from the business combination of $133.4 was included as an adjustment to Additional paid in capital. Subsequent measurements are recorded in "Interest expense, net" in the Unaudited Condensed Consolidated Statements of Earnings (Loss) and "Accumulated other comprehensive income" in the Unaudited Condensed Consolidated Balance Sheets, as appropriate based on the passage of time, change in risk-free rate and implied credit spread. Cash flows of the Tax Receivable Agreement are discounted at an appropriate rate for the applicable duration of the instrument adjusted for our own credit spread. The fair value movement on the tax receivable agreement attributable to our own credit risk spread is recorded in "Accumulated other comprehensive income" in the Unaudited Condensed Consolidated Balance Sheets. These estimates and assumptions are subject to change, which may materially affect the measurement of the liability.
We recorded $1.6, $3.3, $2.7 and $18.8 of accretion expense in "Interest expense, net" for the three and nine months ended September 30, 2021 and 2020, respectively, in the Unaudited Condensed Consolidated Statement of Earnings (Loss). An unrealized gain (loss) of $2.2, $(3.1), $(11.1) and $5.1 was recorded in "Accumulated other comprehensive income" in the Unaudited Condensed Consolidated Balance Sheets, related to the change in fair value of the tax receivable liability for the three and nine months ended September 30, 2021 and 2020, respectively.
The value of the Tax Receivable Agreement is determined using Level 3 inputs. The measurement is calculated using unobservable inputs based on the Company’s own assumptions including the timing and amount of future taxable income and realizability of tax attributes. When valuing the tax receivable liability at September 30, 2021, we utilized a discount rate of 3.1%. The discount rate was determined based on the risk-free rate and Vertiv's implied credit spread. A one percentage point change in the discount rate would result in a change in value of approximately $11.0 at September 30, 2021. Significant changes in unobservable inputs could result in material changes to the tax receivable liability.
Details of the changes in value for the Tax Receivable Agreement are as follows:
20212020
Beginning liability balance, January 1$155.6 $— 
Tax receivable agreement, initially recorded— 133.4 
Change in fair value6.4 13.7 
Ending liability balance, September 30,
$162.0 $147.1 

Interest rate swaps — From time to time the Company may enter into derivative financial instruments designed to hedge the variability in interest expense on floating rate debt. Derivatives are recognized as assets or liabilities in the Consolidated Balance Sheets at their fair value. When the derivative instrument qualifies as a cash flow hedge, changes in the fair value are deferred through other comprehensive earnings, depending on the nature and effectiveness of the offset.
Concurrent with the refinancing on March 2, 2020, the Company designated certain interest rate swaps with an initial notional amount of $1,200.0 as cash flow hedges effectively swapping such amount in LIBOR based floating rate debt for fixed rate debt.
The Company uses interest rate swaps to manage the interest rate mix of our total debt portfolio and related overall cost of borrowing. At September 30, 2021 interest rate swap agreements designated as cash flow hedges effectively swapped a notional amount of $1,000.0 of LIBOR based floating rate debt for fixed rate debt. Our interest rate swaps mature in March 2027. As of September 30, 2021 the fair value of interest rate swaps was $4.8 and was recorded in "Accumulated other comprehensive (loss) income" on the Unaudited Condensed Consolidated Balance Sheets. The total fair value at September 30, 2021 consisted of $10.2 current portion recorded in "Accrued expenses and other liabilities" in the Unaudited Condensed Consolidated Balance Sheets and a $5.4 non-current portion recorded in "Other assets". The Company recognized $2.7, $7.9, $2.9 and $3.4 in earnings for the three and nine months ended September 30, 2021 and 2020, respectively. At September 30, 2021, the Company expects that approximately $10.2 of pre-tax net losses on cash flow hedges will be reclassified from Accumulated other comprehensive income (loss) into earnings during the next twelve months.
The interest rate swaps are valued using the LIBOR yield curves at the reporting date. Counterparties to these contracts are highly rated financial institutions. The fair values of the Company’s interest rate swaps are adjusted for nonperformance risk and creditworthiness of the counterparty through the Company’s credit valuation adjustment (“CVA”). The CVA is calculated at the counterparty level utilizing the fair value exposure at each payment date and applying a weighted probability of the appropriate survival and marginal default percentages.
Net investment hedge — During the three months ended September 30, 2021, the Company designated certain intercompany debt to hedge a portion of its investment in foreign subsidiaries and affiliates. Realized and unrealized translation adjustments from these hedges were insignificant and are included in "Foreign currency translation" in the Unaudited Condensed Consolidated Statement of Other comprehensive income (loss). As of September 30, 2021, approximately $50 of the Company's intercompany debt were designated to hedge investments in certain foreign subsidiaries and affiliates.
Public warrants — as the Company's Public warrants were traded in active markets, their value was derived using quoted market prices and are classified as Level 1 financial instruments.
Private warrants — the fair value of the Private warrants is considered a Level 2 valuation and is determined using the Black-Sholes-Merton valuation model.
The significant assumptions which the Company used in the model are:
Warrant valuation inputsSeptember 30, 2021December 31, 2020
Stock price$24.09 $18.67 
Strike price$11.50 $11.50 
Remaining life3.354.10
Volatility33.4 %29.0 %
Interest rate (1)
0.61 %0.27 %
Dividend yield (2)
0.04 %0.05 %
(1)    Interest rate determined from a constant maturity treasury yield
(2)    September 30, 2021 and December 31, 2020 dividend yield assumes $0.01 per share per annum.

Foreign currency exchange rate risk management
We conduct business in several major international currencies and are, therefore, subject to risks associated with changing foreign currency exchange rates. We enter into various contracts that change in value as foreign currency exchange rates change to manage this exposure. Such contracts limit exposure to both favorable and unfavorable currency exchange rate fluctuations.
Other fair value measurements
We determine the fair value of debt using Level 2 inputs based on quoted market prices. The following table presents the estimated fair value and carrying value of long-term debt, including the current portion of long-term debt as of September 30, 2021 and December 31, 2020.
 September 30, 2021December 31, 2020
 Fair Value
Par Value (1)
Fair Value
Par Value (1)
Term Loan due 2027$2,153.6 $2,167.1 $2,169.9 $2,183.5 
(1)See Note 5 — Debt for additional information