6. Long-term debt

Long-term debt was comprised of the following:


	September 30, 2013			December 31, 2012
Senior Secured Credit Facilities:
Term Loan A	$	825,000		$	900,000
Term Loan A-3		1,299,375			1,350,000
Term Loan B		1,701,875			1,715,000
Term Loan B-2		1,637,625			1,650,000
Senior notes		2,800,000			2,800,000
Acquisition obligations and other notes payable		57,770			64,276
Capital lease obligations		138,198			96,594

Total debt principal outstanding		8,459,843			8,575,870
Discount on long-term debt		(18,639	)		(21,545	)

		8,441,204			8,554,325
Less current portion		(259,770	)		(227,791	)

	$	8,181,434		$	8,326,534

Scheduled maturities of long-term debt at September 30, 2013 were as follows:


2013 (remainder of the year)			60,943
2014			267,108
2015			843,928
2016			1,895,122
2017			908,124
2018			804,715
Thereafter			3,679,903

During the first nine months of 2013, the Company made mandatory principal payments under its Senior Secured Credit Facilities totaling $75,000 on the Term Loan A, $50,625 on the Term Loan A-3, $13,125 on the Term Loan B and $12,375 on the Term Loan B-2.

The Company has entered into several interest rate swap agreements as a means of hedging its exposure to and volatility from variable-based interest rate changes as part of its overall interest rate risk management strategy. These agreements are not held for trading or speculative purposes and have the economic effect of converting the London Interbank Offered Rate (LIBOR) variable component of the Company’s interest rate to a fixed rate. These swap agreements are designated as cash flow hedges, and as a result, hedge-effective gains or losses resulting from changes in the fair values of these swaps are reported in other comprehensive income until such time as each specific swap tranche is realized, at which time the amounts are reclassified into net income. Net amounts paid or received for each specific swap tranche that have settled have been reflected as adjustments to debt expense. In addition, the Company has entered into several interest rate cap agreements that have the economic effect of capping the Company’s maximum exposure to LIBOR variable interest rate changes on specific portions of the Company’s Term Loan B debt and Term Loan B-2 debt, as described below. Certain cap agreements are also designated as cash flow hedges and, as a result, changes in the fair values of these cap agreements are reported in other comprehensive income. Certain other cap agreements are designated as ineffective cash flow hedges, and as a result, changes in the fair value of these cap agreements are reported in net income. The amortization of the original cap premium is recognized as a component of debt expense on a straight-line basis over the term of the cap agreements. The swap and cap agreements do not contain credit-risk contingent features.

In July 2013, the Financial Accounting Standards Board (FASB) issued ASU No. 2013-10, Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. This standard amends the acceptable benchmark interest rates to permit the inclusion of the Fed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge accounting purposes in addition to U.S. government (UST) and LIBOR. The amendment also removes the restriction on using different benchmark rates for similar hedges. This standard is applied prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

As of September 30, 2013, the Company maintains several interest rate swap agreements that were entered into in March 2013 with amortizing notional amounts of these swap agreements totaling $1,299,375. These agreements have the economic effect of modifying the LIBOR variable component of the Company’s interest rate on an equivalent amount of the Company’s Term Loan A-3 to fixed rates ranging from 0.49% to 0.52%, resulting in an overall weighted average effective interest rate of 3.01%, including the Term Loan A-3 margin of 2.50%. The swap agreements expire on September 30, 2016 and require monthly interest payments. During the nine months ended September 30, 2013, the Company recognized debt expense of $2,145 from these swaps. As of September 30, 2013, the total fair value of these swap agreements was a net asset of approximately $3,909. The Company estimates that approximately $3,511 of existing unrealized pre-tax losses in other comprehensive income at September 30, 2013 will be reclassified into income over the next twelve months.

In addition, as of September 30, 2013, the Company also maintains several forward interest rate swap agreements that were entered into in March 2013 with amortizing notional amounts totaling $600,000. These forward swap agreements will be effective September 30, 2014 and will have the economic effect of modifying the LIBOR variable component of the Company’s interest rate on an equivalent amount of the Company’s outstanding debt to fixed rates ranging from 0.72% to 0.75%. These swap agreements expire on September 30, 2016 and will require monthly interest payments beginning in October 2014. Any unrealized gains or losses resulting from changes in the fair value of these swaps will be recorded in other comprehensive income. As of September 30, 2013, the total fair value of these swap agreements was a net asset of approximately $1,676.

As of September 30, 2013, the Company maintains several interest rate cap agreements that were entered into in March 2013 with notional amounts totaling $1,250,000 on the Company’s Term Loan B debt and $1,485,000 on the Company’s Term Loan B-2 debt. These agreements have the economic effect of capping the LIBOR variable component of the Company’s interest rate at a maximum of 2.50% on an equivalent amount of the Company’s Term Loan B and Term Loan B-2 debt. During the nine months ended September 30, 2013, the Company recognized debt expense of $1,220 from these caps. The cap agreements expire on September 30, 2016. As of September 30, 2013, the total fair value of these cap agreements was an asset of approximately $8,838. During the nine months ended September 30, 2013, the Company recorded a gain of $302 in other comprehensive income due to an increase in the unrealized fair value of these cap agreements.

As of September 30, 2013, the Company also maintains a total of nine other interest rate swap agreements with amortizing notional amounts totaling $825,000. These agreements had the economic effect of modifying the LIBOR variable component of the Company’s interest rate on an equivalent amount of the Company’s Term Loan A to fixed rates ranging from 1.59% to 1.64%, resulting in an overall weighted average effective interest rate of 4.36%, including the Term Loan A margin of 2.75%. The swap agreements expire on September 30, 2014 and require monthly interest payments. During the nine months ended September 30, 2013, the Company recognized debt expense of $9,383 from these swaps. As of September 30, 2013, the total fair value of these swap agreements was a liability of approximately $10,759. The Company estimates that approximately $10,759 of existing unrealized pre-tax losses in other comprehensive income at September 30, 2013 will be reclassified into income over the next twelve months.

As of September 30, 2013, the Company also maintains five interest rate cap agreements with notional amounts totaling $1,250,000. These agreements have the economic effect of capping the LIBOR variable component of our interest rate at a maximum of 4.00% on an equivalent amount of our Term Loan B debt. However, as a result of the new interest rate cap agreements that were entered into in March 2013, as described above, these interest rate cap agreements became ineffective cash flow hedges and as a result any changes in the fair value associated with these interest rate cap agreements will be charged to income. During the nine months ended September 30, 2013, the Company recognized debt expense of $2,691 from these caps. The cap agreements expire on September 30, 2014. As of September 30, 2013, the total fair value of these cap agreements was an asset of approximately $4. During the first quarter of 2013, the Company recorded a loss of $3 in other comprehensive income when these caps were designated as effective cash flow hedges due to a decrease in the unrealized fair value of these cap agreements. In late first quarter of 2013, these caps were redesignated as ineffective cash flow hedges and as a result the Company realized a loss of $59 related to a decrease in the fair value of these cap agreements during the second and third quarters of 2013.

The following table summarizes the Company’s derivative instruments as of September 30, 2013 and December 31, 2012:


	September 30, 2013			December 31, 2012
Derivatives designated as hedging instruments	Balance sheet location	Fair value		Balance sheet location	Fair value
Interest rate swap agreements	Other short-term liabilities	$	14,270	Other long-term liabilities	$	18,994

Interest rate swap agreements	Other long-term assets	$	9,096		$	—

Interest rate cap agreements	Other long-term assets	$	8,842	Other long-term assets	$	65

The following table summarizes the effects of the Company’s interest rate swap and cap agreements for the three and nine months ended September 30, 2013 and 2012:


	Amount of gains (losses) recognized in OCI on interest rate swap and cap agreements												Location of losses reclassified from accumulated OCI into income		Amount of losses reclassified from accumulated OCI into income
	Three months ended September 30,						Nine months ended September 30,								Three months ended September 30,						Nine months ended September 30,
Derivatives designated as cash flow hedges	2013			2012			2013			2012					2013			2012			2013			2012
Interest rate swap agreements	$	(10,010	)	$	(2,729	)	$	2,292		$	(8,766	)		Debt expense	$	(4,162	)	$	(3,244	)	$	(11,528	)	$	(9,723	)
Interest rate cap agreements		(2,646	)		(121	)		299			(1,224	)		Debt expense		(1,507	)		(897	)		(3,911	)		(2,691	)
Tax (expense) benefit		4,923			1,109			(1,008	)		3,886					2,205			1,611			6,006			4,828

Total	$	(7,733	)	$	(1,741	)	$	1,583		$	(6,104	)			$	(3,464	)	$	(2,530	)	$	(9,433	)	$	(7,586	)

As of September 30, 2013, interest rates on the Company’s Term Loan B and Term Loan B-2 debt are effectively fixed because of an embedded LIBOR floor which is higher than actual LIBOR as of such date. Furthermore, interest rates on $1,250,000 of the Company’s Term Loan B and $1,485,000 of the Company’s Term Loan B-2 are subject to interest rate caps if LIBOR should rise above 2.50%. Interest rates on the Company’s senior notes are fixed by their terms. The LIBOR variable component of the Company’s interest rates on the Company’s Term Loan A and the Term Loan A-3 are economically fixed as a result of interest rate swaps.

As a result of embedded LIBOR floors in some of the Company’s debt agreements and the swap and cap agreements, the Company’s overall weighted average effective interest rate on the Senior Secured Credit Facilities was 4.18%, based upon the current margins in effect of 2.75% for the Term Loan A, 2.50% for the Term Loan A-3 and 3.00% for both the Term Loan B and for the Term Loan B-2, as of September 30, 2013.

The Company’s overall weighted average effective interest rate during the third quarter of 2013 was 4.87% and as of September 30, 2013 was 4.86%.

As of September 30, 2013, the Company had undrawn revolving credit facilities totaling $350,000 of which approximately $99,000 was committed for outstanding letters of credit. In addition, HCP has an outstanding letter of credit of approximately $1,000 that is secured by a certificate of deposit.