Quarterly report pursuant to Section 13 or 15(d)

Derivatives

v3.21.2
Derivatives
6 Months Ended
Jun. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives Derivatives
Interest Rate Swaps
The Company uses interest rate swaps to hedge variable interest payments due on certain of its term loans and aggregation facility. These swaps allow the Company to incur fixed interest rates on these loans and receive payments based on variable interest rates with the swap counterparty based on the one- or three-month LIBOR on the notional amounts over the life of the swaps.
Certain interest rate swaps have been designated as cash flow hedges. The credit risk adjustment associated with these swaps is the risk of non-performance by the counterparties to the contracts. In the six months ended June 30, 2021, the majority of hedge relationships on the Company’s interest rate swaps have been assessed as highly effective as the quarterly assessment performed determined changes in cash flows of the derivative instruments have been highly effective in offsetting the changes in the cash flows of the hedged items and are expected to be highly effective in the future. Accordingly, changes in the fair value of these derivatives are recorded as a component of accumulated other comprehensive income, net of income taxes. Changes in the fair value of these derivatives are subsequently reclassified into earnings, and are included in interest expense, net in the Company’s statements of operations, in the period that the hedged forecasted transactions affect earnings. To the extent that the hedge relationships are not effective, changes in the fair value of these derivatives are recorded in other expenses, net in the Company's statements of operations on a prospective basis.
The Company’s master netting and other similar arrangements allow net settlements under certain conditions. When those conditions are met, the Company presents derivatives at net fair value. As of June 30, 2021, the information related to these offsetting arrangements were as follows (in thousands):
Instrument Description Gross Amounts of Recognized Assets / Liabilities Gross Amounts Offset in the Consolidated Balance Sheet Net Amounts of Assets / Liabilities Included in the Consolidated Balance Sheet
Notional Amount (1)
Assets:
Derivatives designated as hedging instruments $ 17,084  $ (1,528) $ 15,556  $ 414,157 
Derivatives not designated as hedging instruments —  —  —  — 
Total derivative assets 17,084  (1,528) 15,556  414,157 
Liabilities:
Derivatives designated as hedging instruments (107,726) 1,528  (106,198) 1,394,502 
Derivatives not designated as hedging instruments (24,586) —  (24,586) 434,131 
Total derivative liabilities (132,312) 1,528  (130,784) 1,828,633 
Total derivative assets and liabilities $ (115,228) $ —  $ (115,228) $ 2,242,790 

(1)    Comprised of 56 interest rate swaps which effectively fix the LIBOR portion of interest rates on outstanding balances of certain loans under the senior and securitized sections of the debt footnote table (see Note 8, Indebtedness) at 0.57% to 3.37% per annum. These swaps mature from August 31, 2022 to January 31, 2043.
As of December 31, 2020, the information related to these offsetting arrangements were as follows (in thousands):
Instrument Description Gross Amounts of Recognized Assets / Liabilities Gross Amounts Offset in the Consolidated Balance Sheet Net Amounts of Assets / Liabilities Included in the Consolidated Balance Sheet Notional Amount
Assets:
Derivatives designated as hedging instruments $ 4,293  $ (6) $ 4,287  $ 191,737 
Derivatives not designated as hedging instruments 925  (13) 912  166,138 
Total derivative assets 5,218  (19) 5,199  357,875 
Liabilities:
Derivatives designated as hedging instruments (165,996) (165,990) 1,796,596 
Derivatives not designated as hedging instruments (9,448) 13  (9,435) 190,530 
Total derivative liabilities (175,444) 19  (175,425) 1,987,126 
Total derivative assets and liabilities $ (170,226) $ —  $ (170,226) $ 2,345,001 
The losses (gains) on derivatives designated as cash flow hedges recognized into OCI, before tax effect, consisted of the following (in thousands):
Six months ended June 30,
2021 2020
Derivatives designated as cash flow hedges:
   Interest rate swaps $ (25,063) $ 102,648 
The losses (gains) on derivatives financial instruments recognized into the consolidated statements of operations, before tax effect, consisted of the following (in thousands):
Six months ended June 30,
2021 2020
Interest expense, net Other expense, net Interest expense, net Other expense, net
Derivatives designated as cash flow hedges:
   Interest rate swaps
      Losses (gains) reclassified from AOCI into income $ 9,213  $ —  $ 907  $ — 
Derivatives not designated as cash flow hedges:
   Interest rate swaps
      Gains recognized into income —  (20,162) —  — 
         Total losses (gains) $ 9,213  $ (20,162) $ 907  $ — 
All amounts in Accumulated other comprehensive income (loss) ("AOCI") in the consolidated statements of redeemable noncontrolling interests and equity relate to derivatives, refer to the consolidated statements of comprehensive (loss) income. The net (loss) gain on derivatives includes the tax effect of $9.2 million and $0.8 million for the three months ended June 30, 2021 and 2020, respectively, and $9.0 million and $27.2 million for six months ended June 30, 2021 and 2020, respectively.
During the next 12 months, the Company expects to reclassify $24.5 million of net losses on derivative instruments from accumulated other comprehensive income to earnings. There were three undesignated derivative instruments recorded by the Company as of June 30, 2021.