Quarterly report pursuant to Section 13 or 15(d)

Interest Rate Derivatives

v3.7.0.1
Interest Rate Derivatives
 6 Months Ended
Jun. 30, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Interest Rate Derivatives
Interest Rate Derivatives
 
The following table sets forth the key terms and fair values of our interest rate swap derivatives, each of which was designated as a cash flow hedge of interest rate risk (dollars in thousands):
 
 
 



 

 

Fair Value at
Notional Amount
 
Fixed Rate

Floating Rate Index

Effective Date

Expiration Date

June 30,
2017

December 31,
2016
$
100,000


1.7300%

One-Month LIBOR

9/1/2015

8/1/2019

$
(408
)

$
(848
)
13,402

(1)
1.3900%
 
One-Month LIBOR
 
10/13/2015
 
10/1/2020
 
117

 
100

100,000

 
1.9013%
 
One-Month LIBOR
 
9/1/2016
 
12/1/2022
 
(79
)
 
(23
)
100,000

 
1.9050%
 
One-Month LIBOR
 
9/1/2016
 
12/1/2022
 
(68
)
 
48

50,000

 
1.9079%
 
One-Month LIBOR
 
9/1/2016
 
12/1/2022
 
(46
)
 
10

100,000

(2)
1.6730%

One-Month LIBOR

9/1/2015

8/1/2019

—


(701
)
 

 
 

 

 

 

$
(484
)

$
(1,414
)

(1)     The notional amount of this instrument is scheduled to amortize to $12.1 million.
(2)
We cash settled this derivative and interest accrued thereon for $460,000 on May 1, 2017. Since the hedged transactions associated with this derivative were still probable to occur as of the settlement date, amounts in accumulated other comprehensive loss (“AOCL”) associated with this derivative will be reclassified to interest expense through August 2019.
 
The table below sets forth the fair value of our interest rate derivatives as well as their classification on our consolidated balance sheets (in thousands):
 
 
 
 
Fair Value at
Derivatives
 
Balance Sheet Location
 
June 30,
2017
 
December 31, 2016
Interest rate swaps designated as cash flow hedges
 
Prepaid expenses and other assets
 
$
117

 
$
158

Interest rate swaps designated as cash flow hedges
 
Other liabilities
 
(601
)
 
(1,572
)

 
The table below presents the effect of our interest rate derivatives on our consolidated statements of operations and comprehensive income (in thousands):
 
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Unrealized loss recognized in AOCL (effective portion)
 
$
(1,800
)
 
$
(5,704
)
 
$
(1,576
)
 
$
(16,988
)
Loss reclassified from AOCL into interest expense (effective portion)
 
(853
)
 
(850
)
 
(2,037
)
 
(1,720
)
(Loss) gain on derivatives recognized in interest expense (ineffective portion)
 
(356
)
 
(319
)
 
98

 
(1,870
)
Loss reclassified from AOCL into interest expense (ineffective portion) (1)
 
(88
)
 
—

 
(88
)
 
—



(1)
Represents a loss recognized on certain interest rate swaps from the accelerated reclassification of amounts in AOCL in the three and six months ended June 30, 2017, when we concluded that hedged forecasted transactions were probable not to occur.

Over the next 12 months, we estimate that approximately $1.9 million of losses will be reclassified from AOCL as an increase to interest expense.

We have agreements with each of our interest rate derivative counterparties that contain provisions under which, if we default or are capable of being declared in default on defined levels of our indebtedness, we could also be declared in default on our derivative obligations. Failure to comply with the loan covenant provisions could result in our being declared in default on any derivative instrument obligations covered by the agreements.  As of June 30, 2017, the fair value of interest rate derivatives in a liability position related to these agreements was $591,000, excluding the effects of accrued interest and credit valuation adjustments. As of June 30, 2017, we had not posted any collateral related to these agreements.  We are not in default with any of these provisions.  If we breached any of these provisions, we could be required to settle our obligations under the agreements at their termination value of $822,000.