Derivative Financial Instruments

6 Months Ended

Jun. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

On April 19, 2023, the Company entered into a floating-to-fixed interest rate swap with respect to $200 million of the $400 million 2022 Term Loan through the maturity date of March 3, 2025. This swap effectively fixed the underlying SOFR rate at 4.298%.

On September 27, 2022, the Company entered into a floating-to-fixed interest rate swap with respect to the $350 million 2021 Term Loan through the maturity date of August 30, 2024. This swap effectively fixed the underlying SOFR rate at 4.234%.

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 these objectives, 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. During 2022 and 2023, such derivatives were used to hedge the variable cash flows associated with the 2021 and 2022 Term Loans (referred to as "cash flow hedges").

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income and subsequently reclassified into interest expense in the same periods during which the hedged transaction affects earnings.

The counterparties under these swaps are major financial institutions, and the swaps contain provisions whereby if the Company defaults on certain of its indebtedness, and such default results in repayment of such indebtedness being, or becoming capable of being, accelerated by the lender, then the Company could also be declared in default under the swaps. There are no collateral requirements related to these swaps.

As of June 30, 2023, the fair value of the swap with respect to the 2022 Term Loan was $1.9 million and is included in other assets on the Company's consolidated balance sheets.

As of June 30, 2023 and December 31, 2022, the fair value of the swap with respect to the 2021 Term Loan was $3.7 million and $1.8 million, respectively, and are included in other assets on the Company's consolidated balance sheets.

The table below presents the effect of the Company's derivative financial instruments on the consolidated statements of operations for the three and six months ended June 30, 2023 and 2022 ($ in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
Cash Flow Hedges:	2023		2022		2023		2022
Amount of income recognized in accumulated other comprehensive income on interest rate derivatives	$	5,936	$	—	$	4,894	$	—
Amount of income reclassified from accumulated other comprehensive income into income as a reduction of interest expense	$	(908)	$	—	$	(1,096)	$	—
Total amount of interest expense presented in the consolidated statements of operations	$	25,972	$	16,549	$	51,002	$	32,074

The fair value of these hedges is determined using observable inputs other than quoted prices in active markets, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. These inputs are considered Level 2 inputs in the fair value hierarchy, and the Company engages a third-party expert to determine these inputs. The fair value of the cash flow hedges is determined using the conventional industry methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts made between the Company and its counterparties to the cash flow hedges. These variable cash receipts are based on the expectation of future interest rates which are derived from observed market interest rate curves. In addition, any credit valuation adjustments are considered in the fair values to account for potential nonperformance risk to the extent they would be significant inputs to the calculations. For the periods presented, credit valuation adjustments were not considered to be significant inputs.