Interest Rate Derivatives

6 Months Ended

Jun. 30, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company has entered into various derivative agreements with financial institutions to hedge interest rate risk related to its outstanding debt. The Company had the following interest rate derivatives recorded as an asset within other assets in the Condensed Consolidated Statements of Financial Condition as of June 30, 2022 and December 31, 2021:


Derivative	Notional Amount		Fair Value as of June 30, 2022		Fair Value as of December 31, 2021		Fixed Rate Paid		Floating Rate Received	Effective Date(2)	Maturity Date
Interest rate swap	$	232,000	$	20,661	$	2,264	1.33	%	1 month LIBOR (1)	March 2021	February 2028
Interest rate swap	68,000		5,852		431		1.39	%	1 month LIBOR (1)	July 2021	February 2028
			$	26,513	$	2,695

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(1)Floating rate received subject to a 0.50% Floor. Refer to Note 12 regarding the interest rate on the outstanding debt in the event of a Benchmark Transition Event. If the outstanding debt defaults to Term SOFR plus a Benchmark Replacement Adjustment, the floating rate received under the interest rate swaps will also default to such rate.

(2)Represents the date at which the derivative is in effect and the Company is contractually required to begin payment of interest under the terms of the agreement.

A rollforward of the amounts in accumulated other comprehensive income (loss) (“AOCI”) related to interest rate derivatives designated as cash flow hedges is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Derivative gain (loss) at beginning of period	$	14,712	$	(7,484)	$	(3,622)	$	(11,163)
Amount recognized in other comprehensive income	6,392		(4,179)		22,752		(1,620)
Amount reclassified from accumulated other comprehensive loss to interest expense	1,788		1,844		3,762		2,964
Derivative gain (loss) at end of period	22,892		(9,819)		22,892		(9,819)
Less: gain (loss) attributable to noncontrolling interests in GCMH	17,385		(7,697)		17,385		(7,697)
Derivative gain (loss) at end of period, net	$	5,507	$	(2,122)	$	5,507	$	(2,122)

On February 24, 2021, the Company terminated derivative instruments which were entered into in 2017 and 2018. Prior to termination, certain derivative instruments did not qualify for hedge accounting due to floor rate mismatches and as a result, all changes in fair value for those derivative instruments were reflected within other income (expense) in the Condensed Consolidated Statements of Income. The amount previously recorded as a hedge in AOCI remains in AOCI and was recorded in interest expense within the Condensed Consolidated Statements of Income over the original life of the swap. The Company reclassified $1.4 million for each of the three months ended June 30, 2022 and 2021, and $2.7 million and $1.9 million for the six months ended June 30, 2022 and 2021, respectively, from AOCI to interest expense relating to the terminated derivative instrument that initially qualified for hedge accounting. During the next twelve months the Company expects to reclassify approximately $1.8 million to interest expense. Prior to terminating the instruments in February 2021, the Company recognized a gain of $1.9 million related to interest rate contracts not designated as hedging instruments, which was recorded within other income (expense) in the Condensed Consolidated Statements of Income during the six months ended June 30, 2021.

Effective on March 1, 2021, the Company entered into a swap agreement (“2028 Swap Agreement”) to hedge interest rate risk related to payments made during the extended maturity of the 2028 Term Loans that has a notional amount of $232.0 million. The 2028 Swap Agreement and 2028 Term Loans have a 0.50% LIBOR floor. The swap was determined to be an effective cash flow hedge at inception based on a comparison of critical terms.

Effective on July 1, 2021, the Company entered into a swap agreement (“2028 Incremental Swap Agreement”) to hedge interest rate risk related to payments made for the increase in aggregate principal amount of the Incremental 2028 Term Loans that has a notional amount of $68.0 million. The 2028 Incremental Swap Agreement and Incremental 2028 Term Loans have a 0.50% LIBOR floor. The swap was determined to be an effective cash flow hedge at inception based on a comparison of critical terms.

The fair values of the interest rate swaps and interest rate collar are based on observable market inputs and represent the net amount required to terminate the positions, taking into consideration market rates and non-performance risk. Refer to Note 6 for further details.

As of June 30, 2022, all of the Company’s derivative exposure is with one financial institution. By using derivatives, the Company is exposed to counterparty credit risk if the counterparty to the derivative contracts does not perform as expected. If a counterparty fails to perform, the Company's counterparty credit risk is equal to the amount reported as a derivative asset in the Condensed Consolidated Statements of Financial Condition. The Company minimizes counterparty credit risk through credit approvals and monitoring procedures, where appropriate.