Financial Instruments

3 Months Ended

Mar. 31, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Financial Instruments

Financial Instruments

The Company uses an interest rate swap to manage its exposure to market risks for changes in interest rates.

Interest Rate Risk

Interest income earned on cash and cash equivalents may fluctuate as interest rates change; however, due to their relatively short maturities, the Company does not hedge these assets or their investment cash flows because the impact of interest rate risk is not material. The Company is exposed to interest rate risk on its debt obligations. The Company’s debt obligations consist of variable-rate and fixed-rate debt instruments. The Company’s primary objective is to achieve the lowest overall cost of funding while managing the variability in cash outflows within an acceptable range. To achieve this objective, the Company initially entered into an interest rate swap on the Term Loan Due 2025. On November 14, 2023, in connection with the refinancing of the Term Loan Due 2025, the Company novated its swap agreement to another counterparty and, in connection with such novation, amended the interest rate swap agreement. Refer to the section “Interest Rate Derivative - Cash Flow Hedge” below and in Note 20. Financial Instruments in the Company’s 2023 Annual Report on Form 10-K for additional information and the definition of certain terms.

Interest Rate Derivative – Cash Flow Hedge

The interest rate swap involves the periodic exchange of payments without the exchange of underlying principal or notional amounts. In October 2019, the Company entered into an interest rate lock agreement for a total notional amount of $1.3 billion to hedge part of the Company's interest rate exposure associated with the variability in future cash flows from changes in the one-month London interbank offered rate (“LIBOR”) associated with the Term Loan Due 2025 (the “October 2019 Swap”). On May 31, 2023, the Company executed an amendment to the October 2019 Swap that, among other things, changed the variable reference rate from LIBOR to the one-month secured overnight financing rate (“SOFR”) (the “Amended October 2019 Swap”). On November 14, 2023, in connection with the Company’s refinancing of the Term Loan Due 2025 and the New Credit Facility

(refer to Note 16. Debt in the Company’s 2023 Annual Report on Form 10-K for definitions and additional information), the Company novated the Amended October 2019 Swap to another counterparty and subsequently amended the interest rate agreement. Specifically, the amendments modified (i) the fixed rate payable by the counterparty from 1.3660% to a new fixed rate of 2.7877% and (ii) extended the termination date through May 4, 2027 (i.e., one year before the Term Loan Due 2028 matures) (the “November 2023 Swap”). The amendments did not change the notional amount of $1.3 billion. The purpose of the November 2023 Swap is to hedge part of the Company's interest rate exposure associated with the variability in future cash flows from changes in the one-month SOFR associated with the Term Loan Due 2028.

The Company used a strategy commonly referred to as “blend and extend,” which allows the existing asset position of the swap agreement to be effectively blended into the new interest rate swap agreement. As a result of this transaction, on November 14, 2023, the Amended October 2019 Swap was de-designated and the unrealized gain of $66.7 million was recorded within accumulated other comprehensive (loss) income and will be amortized as a reduction of interest expense, net, over the original term of the of the Amended October 2019 Swap (until May 2025), as the hedged transactions affect earnings. Additionally, the November 2023 Swap had a fair value of $66.7 million at inception and will be ratably recorded to accumulated other comprehensive (loss) income and reclassified to interest expense, net, over the term of the November 2023 Swap, as the hedged transactions affect earnings.

During the three months ended March 31, 2024, the Company reclassified a gain of $6.5 million from accumulated other comprehensive loss to interest expense, net. Approximately $26.1 million of net gains included in accumulated other comprehensive loss as of March 31, 2024 are expected to be reclassified into earnings within the next 12 months as interest payments are made on the Company’s Term Loan Due 2028 and amortization of the amounts included in accumulated other comprehensive loss occurs.

As of March 31, 2024, the total gain, net of income taxes, related to the Company’s cash flow hedge of $42.8 million, was recognized in accumulated other comprehensive loss.

A summary of the fair values of derivative instruments in the consolidated balance sheets was as follows (in thousands):

	March 31, 2024			December 31, 2023
Derivatives Designated as Hedging Instruments	Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
Variable-to-fixed interest rate swap	Other Assets	$	52,632	Other Assets	$	37,089