COPT Defense Properties Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Interest Rate Derivatives

Interest Rate Derivatives

12 Months Ended

Dec. 31, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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):



Notional Amount						Effective Date	Expiration Date	Fair Value at December 31,
Notional Amount			Fixed Rate		Floating Rate Index	Effective Date	Expiration Date	2018			2017
$	100,000		1.7300	%	One-Month LIBOR	9/1/2015	8/1/2019	$	472		$	252
12,834		(1)	1.3900	%	One-Month LIBOR	10/13/2015	10/1/2020	239			213
100,000			1.9013	%	One-Month LIBOR	9/1/2016	12/1/2022	1,968			1,046
100,000			1.9050	%	One-Month LIBOR	9/1/2016	12/1/2022	1,967			1,051
50,000			1.9079	%	One-Month LIBOR	9/1/2016	12/1/2022	971			511
75,000			3.1760	%	Three-Month LIBOR	6/30/2020	6/30/2030	(2,676		)	—
75,000			3.1920	%	Three-Month LIBOR	6/30/2020	6/30/2030	(2,783		)	—
								$	158		$	3,073

(1) The notional amount of this instrument is scheduled to amortize to $12.1 million.

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 December 31,
Derivatives	Balance Sheet Location	2018			2017
Interest rate swaps designated as cash flow hedges	Interest rate derivatives	$	5,617		$	3,073
Interest rate swaps designated as cash flow hedges	Other liabilities	(5,459		)	—

The table below presents the effect of our interest rate derivatives on our consolidated statements of operations and comprehensive income (in thousands):



	Amount of (Loss) Gain Recognized in AOCI on Derivatives								Amount of Gain (Loss) Reclassified from AOCI into Interest Expense on Statement of Operations
	For the Years Ended December 31,								For the Years Ended December 31,
Derivatives in Hedging Relationships	2018			2017		2016			2018		2017			2016
Interest rate derivatives	$	(2,373	)	$	684	$	(2,915	)	$	407	$	(3,304	)	$	(4,230	)

Over the next 12 months, we estimate that approximately $2.1 million of gains will be reclassified from AOCI as a decrease 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. We are not in default with any of these provisions. As of December 31, 2018, the fair value of interest rate derivatives in a liability position related to these agreements was $5.5 million, excluding the effects of accrued interest and credit valuation adjustments. As of December 31, 2018, 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 $5.5 million.