DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

Hedges of Interest Rate Risk

In order to manage financing costs and interest rate exposure related to the one-month LIBOR indexed variable rate borrowings, on August 13, 2015, we entered into ten interest rate swap agreements with multiple counterparties totaling $385,000,000 of notional value. These swap agreements became effective on November 2, 2015. On August 3, 2017, we repaid $65,000,000 of outstanding one-month LIBOR indexed variable rate borrowings and we terminated three interest rate swaps with an aggregate notional value of $65,000,000. In connection with such termination, we reclassified $8,000 related to the associated interest rate swaps from accumulated other comprehensive income to interest expense on our consolidated statement of operations for the year ended December 31, 2017. In addition, we incurred a termination fee of $38,000, which is included in interest expense on our consolidated statement of operations for the year ended December 31, 2017. On November 29, 2017, we repaid $150,000,000 of outstanding one-month LIBOR indexed variable rate borrowings and we terminated four interest rate swaps with an aggregate notional value of $150,000,000. In connection with such termination, we reclassified $926,000 related to the associated interest rate swaps from accumulated other comprehensive income to interest expense on our consolidated statement of operations for the year ended December 31, 2017. Such swaps were in the money at the time of their termination and we received termination payments, net of fees, of $1,011,000, which are included in interest expense on our consolidated statement of operations for the year ended December 31, 2017. On December 28, 2018, we repaid $40,000,000 of outstanding one-month LIBOR indexed variable rate borrowings and we terminated one interest rate swap with a notional value of $50,000,000. Such swap was in the money at the time of its termination and we received a termination payment, net of fees, of $684,000, which is included in interest expense on our consolidated statement of operations for the year ended December 31, 2018. Subsequent to December 31, 2018, we repaid $130,000,000 of outstanding one-month LIBOR indexed variable rate borrowings (Note 8) and we terminated our two remaining interest rate swaps with an aggregate notional value of $120,000,000. Such swaps were in the money at the time of their termination and we received a termination payment, net of fees, of $1,302,000, which was recorded as a decrease to interest expense on our consolidated statement of operations at such time.

Each of our interest rate swap agreements initially met the criteria for cash flow hedge accounting treatment and we had designated the interest rate swap agreements as cash flow hedges of the risk of variability attributable to changes in the one-month LIBOR. Accordingly, the interest rate swaps were recorded on the consolidated balance sheets at fair value, and prior to August 1, 2018, the changes in the fair value of the swaps were recorded in OCI and reclassified to earnings as an adjustment to interest expense as interest becomes receivable or payable (Note 2). On July 31, 2018, we determined the hedged forecasted transaction was no longer probable of occurring so all subsequent changes in the fair value of our interest rate swaps will be included in interest expense on our consolidated statements of operations. The balance in AOCI as of July 31, 2018 is reclassified to earnings as an adjustment to interest expense on our consolidated statements of operations as the originally designated forecasted transaction affects earnings. For the year ended December 31, 2018, $1,552,000 was reclassified from AOCI and decreased interest expense on our consolidated statements of operations. Beginning on August 1, 2018, changes in the fair value of the swaps are recorded in interest expense on our consolidated statements of operations. For the year ended December 31, 2018, $1,728,000 is included as an increase in interest expense on our consolidated statements of operations related to the change in the fair value of our interest rate swaps. We do not expect any significant losses from counterparty defaults related to our swap agreements. Subsequent to December 31, 2018, the fair value of our two remaining interest rate swaps, which at such time was $1,421,000, was reclassified to earnings as an increase to interest expense on our consolidated statement of operations in connection with the termination of such swaps.

Summary of Derivatives

The following table sets forth the key terms of our interest rate swap contracts:

Number of Interest

Rate Swaps (1) (2)

Total Notional Amount

Fixed Rates

Floating Rate Index

Effective Date

Expiration

Date

(in thousands)

120,000

1.562% - 1.565%

One-Month LIBOR

11/2/2015

5/8/2020


(1)	See Note 14 for our fair value disclosures. Subsequent to December 31, 2018, these interest rate swaps were terminated.


(2)	Our interest rate swaps are not subject to master netting arrangements.

These swaps hedge the risk of the variability in the future cash flows of our one-month LIBOR indexed variable rate interest payments by fixing the rate until May 8, 2020 at a weighted average rate of 1.563% plus the credit spread, which was 1.55% and 1.60% at December 31, 2018 and 2017, respectively, or an all-in rate of 3.11% and 3.16%, respectively.

Credit-Risk-Related Contingent Features

Each of our interest rate swap agreements contains a provision under which we could also be declared in default under such agreements if we default on the revolving credit facility or if we defaulted on the term loan facility. As of December 31, 2018 and 2017, there have been no events of default under our interest rate swap agreements.

Impact of Hedges on AOCI and Consolidated Statements of Operations

The changes in the balance of each component of AOCI related to our interest rate swaps designated as cash flow hedges are as follows:



	Year Ended December 31,
	2018			2017			2016
	(in thousands)
Accumulated other comprehensive income (loss), at beginning of period	$	1,631		$	(509	)	$	(2,519	)
Other comprehensive income (loss) before reclassifications	1,973			361			(2,227		)
Amounts reclassified (to) from accumulated other comprehensive income (loss) (1)	(1,798		)	1,779			4,237
Net current period other comprehensive income	175			2,140			2,010
Accumulated other comprehensive income (loss), at end of period	$	1,806		$	1,631		$	(509	)


(1)	The amounts from AOCI are reclassified as a (decrease) increase to interest expense in the statements of operations.

Future Reclassifications from AOCI

As of July 31, 2018, the hedged forecasted transaction was no longer probable of occurring so the interest rate swaps were no longer eligible for hedge accounting and all future changes in fair value of the interest rate swaps were recorded in interest expense on our consolidated statements of operations and no amounts will be deferred into AOCI. The balance in AOCI as of July 31, 2018 is reclassified to earnings as an adjustment to interest expense on our consolidated statements of operations as the originally designated forecasted transaction affects earnings. Subsequent to December 31, 2018, the remaining balance in AOCI, which at such time was $1,580,000, was reclassified to earnings as a decrease to interest expense on our consolidated statement of operations in connection with the termination of our two remaining interest rate swaps.