Annual report pursuant to Section 13 and 15(d)

Long-Term Debt

v3.20.4
Long-Term Debt
12 Months Ended
Dec. 31, 2020
Debt Disclosure [Abstract]  
Long-Term Debt

13.

LONG-TERM DEBT

As of December 31, long-term debt consisted of the following:

 

 

 

December 31,

 

 

 

2019

 

 

2020

 

Cinemark USA, Inc. term loan due 2025

 

$

646,327

 

 

$

639,731

 

Cinemark USA, Inc. 5.125% senior notes due 2022

 

 

400,000

 

 

 

400,000

 

Cinemark USA, Inc. 4.875% senior notes due 2023

 

 

755,000

 

 

 

755,000

 

Cinemark USA, Inc. 8.750% senior secured notes due 2025

 

 

 

 

 

250,000

 

Cinemark Holdings, Inc. 4.500% convertible senior notes due 2025

 

 

 

 

 

460,000

 

Other

 

 

 

 

 

23,169

 

Total long-term debt

 

 

1,801,327

 

 

 

2,527,900

 

Less current portion

 

 

6,595

 

 

 

18,056

 

Less:  Debt discounts and debt issuance costs, net of accumulated amortization

 

 

23,390

 

 

 

132,682

 

Long-term debt, less current portion, net of debt discounts and unamortized debt issuance costs

 

$

1,771,342

 

 

$

2,377,162

 

 

Senior Secured Credit Facility

Cinemark USA, Inc. has a senior secured credit facility that includes a $700,000 term loan and a $100,000 revolving credit line (the “Credit Agreement”).

Effective March 29, 2018, Cinemark USA, Inc. amended its Credit Agreement  to extend the maturity of the term loan to March 2025, reduce the term loan interest rate by 0.25% and reduce real property mortgage requirements follows.  As a result of the amendment, the Company recorded $1,484 as a loss on debt amended on the consolidated income statement and $4,962 as debt issue costs on the consolidated statement of cash flows for the year ended December 31, 2018. during 2017 and 2019:

Under the amended Credit Agreement, quarterly principal payments of $1,649 are due on the term loan through December 31, 2024, with a final principal payment of $613,351 due on March 29, 2025.

Subsequent to the March 29, 2018 amendment noted in the table above, interest on the term loan accrues at Cinemark USA, Inc.’s option at: (A) the base rate equal to the greater of (1) the US “Prime Rate” as quoted in The Wall Street Journal or if no such rate is quoted therein, in a Federal Reserve Board statistical release, (2) the federal funds effective rate plus 0.50%, and (3) a one-month Eurodollar-based rate plus 1.0%, plus, in each case, a margin of 0.75% per annum, or (B) a Eurodollar-based rate for a period of 1, 2, 3, 6, 9 or 12 months plus a margin of 1.75% per annum. Interest on the revolving credit line accrues, at our option, at: (A) a base rate equal to the greater of (1)

the US “Prime Rate” as quoted in The Wall Street Journal or if no such rate is quoted therein, in a Federal Reserve Board statistical release, (2) the federal funds effective rate plus 0.50%, and (3) a one-month Eurodollar-based rate plus 1.0%, plus, in each case, a margin that ranges from 0.50% to 1.25% per annum, or (B) a Eurodollar-based rate for a period of 1, 2, 3, 6, 9 or 12 months plus a margin that ranges from 1.50% to 2.25% per annum. The margin of the revolving credit line is determined by the consolidated net senior secured leverage ratio as defined in the Credit Agreement.

At December 31, 2020, there was $639,731 outstanding under the term loan and no borrowings outstanding under the $100,000 revolving credit line.  The average interest rate on outstanding term loan borrowings under the Credit Agreement at December 31, 2020 was approximately 3.4% per annum, after giving effect to the interest rate swaps discussed below.

Cinemark USA, Inc.’s obligations under the Credit Agreement are guaranteed by Cinemark Holdings, Inc. and certain of Cinemark USA, Inc.’s domestic subsidiaries and are secured by mortgages on certain fee and leasehold properties and security interests in substantially all of Cinemark USA, Inc.’s and the guarantors’ personal property, including, without limitation, pledges of all of Cinemark USA, Inc.’s capital stock, all of the capital stock of certain of Cinemark USA, Inc.’s domestic subsidiaries and 65% of the voting stock of certain of its foreign subsidiaries.

The Credit Agreement contains usual and customary negative covenants for agreements of this type, including, but not limited to, restrictions on Cinemark USA, Inc.’s ability, and in certain instances, its subsidiaries’ and our ability, to consolidate or merge or liquidate, wind up or dissolve; substantially change the nature of its business; sell, transfer or dispose of assets; create or incur indebtedness; create liens; pay dividends or repurchase stock; and make capital expenditures and investments. If Cinemark USA, Inc. has borrowings outstanding on the revolving credit line, it is required to keep a consolidated net senior secured leverage ratio, as defined in the Credit Agreement, not to exceed 4.25 to 1.  See discussion below regarding recent covenant waivers.  

The dividend restriction contained in the Credit Agreement prevents the Company and any of its subsidiaries from paying a dividend or otherwise distributing cash to its stockholders unless (1) the Company is not in default, and the distribution would not cause Cinemark USA, Inc. to be in default, under the Credit Agreement; and (2) the aggregate amount of certain dividends, distributions, investments, redemptions and capital expenditures made since December 18, 2012, including dividends declared by the board of directors, is less than the sum of (a) the aggregate amount of cash and cash equivalents received by Cinemark Holdings, Inc. or Cinemark USA, Inc. as common equity since December 18, 2012, (b) Cinemark USA, Inc.’s consolidated EBITDA minus 1.75 times its consolidated interest expense, each as defined in the Credit Agreement, and (c) certain other defined amounts (collectively the “Applicable Amount”). As of December 31, 2020, Cinemark USA, Inc. could have distributed up to approximately $2,700,000 to its parent company and sole stockholder, Cinemark Holdings, Inc.

On April 17, 2020, in conjunction with the issuance of the 8.750% Secured Notes discussed below, the Company obtained a waiver of the leverage covenant, which applies when amounts are outstanding under the revolving line of credit, from the majority of revolving lenders under the Credit Agreement for the fiscal quarters ending September 30, 2020 and December 31, 2020.  The waiver is subject to certain liquidity thresholds, restrictions on investments and the use of the Applicable Amount.

On August 21, 2020, in conjunction with the issuance of the 4.50% Convertible Senior Notes discussed below, the Company further amended the waiver of the leverage covenant to extend through the fiscal quarter ending September 30, 2021.  The amendment also i) modifies the maintenance covenant calculation beginning with the calculation for the trailing twelve-month period ended December 31, 2021, ii) for purposes of testing the consolidated net senior secured leverage ratio for the fiscal quarters ending on December 31, 2021, March 31, 2022 and June 30, 2022, permits the Company to substitute Consolidated EBITDA for the first three fiscal quarters of 2019 in lieu of Consolidated EBITDA for the corresponding fiscal quarters of 2021, (iii) modifies the restrictions imposed by the covenant waiver, and (iv) makes such other changes to permit the issuance of the 4.50% Convertible Senior Notes discussed below

4.875% Senior Notes

On May 24, 2013, Cinemark USA, Inc. issued $530,000 aggregate principal amount of 4.875% senior notes

due 2023, at par value, (the “4.875% Senior Notes”). Interest on the 4.875% Senior Notes is payable on June 1 and December 1 of each year. The 4.875% Senior Notes mature on June 1, 2023.

On March 21, 2016, Cinemark USA, Inc. issued an additional $225,000 aggregate principal amount of the 4.875% Senior Notes, at 99.0% of the principal amount plus accrued and unpaid interest from December 1, 2015.  These additional notes have identical terms, other than the issue date, the issue price and the first interest payment date, and constitute part of the same series as Cinemark USA, Inc.’s existing 4.875% Senior Notes.  The aggregate principal amount of $755,000 of 4.875% Senior Notes mature on June 1, 2023.

The 4.875% Senior Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by certain of Cinemark USA, Inc.’s subsidiaries that guarantee, assume or become liable with respect to any of Cinemark USA, Inc.’s or a guarantor’s debt. The 4.875% Senior Notes and the guarantees are senior unsecured obligations and rank equally in right of payment with all of Cinemark USA, Inc.’s and its guarantor’s existing and future senior unsecured debt and senior in right of payment to all of Cinemark USA, Inc.’s and its guarantor’s existing and future senior subordinated debt. The 4.875% Senior Notes and the guarantees are effectively subordinated to all of Cinemark USA, Inc.’s and its guarantor’s existing and future secured debt to the extent of the value of the assets securing such debt, including all borrowings under Cinemark USA, Inc.’s Credit Agreement. The 4.875% Senior Notes and the guarantees are structurally subordinated to all existing and future debt and other liabilities of Cinemark USA, Inc.’s subsidiaries that do not guarantee the 4.875% Senior Notes.

The indenture governing the 4.875% Senior Notes contains covenants that limit, among other things, the ability of Cinemark USA, Inc. and certain of its subsidiaries to (1) make investments or other restricted payments, including paying dividends, making other distributions or repurchasing subordinated debt or equity, (2) incur additional indebtedness and issue preferred stock, (3) enter into transactions with affiliates, (4) enter new lines of business, (5) merge or consolidate with, or sell all or substantially all of its assets to, another person and (6) create liens. As of December 31, 2020, Cinemark USA, Inc. could have distributed up to approximately $2,800,000 to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the indenture governing the 4.875% Senior Notes, subject to its available cash and other borrowing restrictions outlined in the indenture. Upon a change of control, as defined in the indenture governing the 4.875% Senior Notes, Cinemark USA, Inc. would be required to make an offer to repurchase the 4.875% Senior Notes at a price equal to 101% of the aggregate principal amount outstanding plus accrued and unpaid interest, if any, through the date of repurchase. The indenture governing the 4.875% Senior Notes allows Cinemark USA, Inc. to incur additional indebtedness if it satisfies the coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances. The required minimum coverage ratio is 2.0 to 1.0 and the actual ratio as of December 31, 2020 was below zero.

Cinemark USA, Inc. may redeem the 4.875% Senior Notes in whole or in part at redemption prices specified in the indenture.

5.125% Senior Notes

On December 18, 2012, Cinemark USA, Inc. issued $400,000 aggregate principal amount of 5.125% senior notes due 2022, at par value (the “5.125% Senior Notes”). Interest on the 5.125% Senior Notes is payable on June 15 and December 15 of each year. The 5.125% Senior Notes mature on December 15, 2022.

The 5.125% Senior Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by certain of Cinemark USA, Inc.’s subsidiaries that guarantee, assume or become liable with respect to any of Cinemark USA, Inc.’s or a guarantor’s debt. The 5.125% Senior Notes and the guarantees are senior unsecured obligations and rank equally in right of payment with all of Cinemark USA, Inc.’s and its guarantor’s existing and future senior unsecured debt and senior in right of payment to all of Cinemark USA, Inc.’s and its guarantor’s existing and future subordinated debt. The 5.125% Senior Notes and the guarantees are effectively subordinated to all of Cinemark USA, Inc.’s and its guarantor’s existing and future secured debt to the extent of the value of the

assets securing such debt, including all borrowings under Cinemark USA, Inc.’s Credit Agreement. The 5.125% Senior Notes and the guarantees are structurally subordinated to all existing and future debt and other liabilities of Cinemark USA, Inc.’s subsidiaries that do not guarantee the 5.125% Senior Notes.

The indenture governing the 5.125% Senior Notes contains covenants that limit, among other things, the ability of Cinemark USA, Inc. and certain of its subsidiaries to (1) make investments or other restricted payments, including paying dividends, making other distributions or repurchasing subordinated debt or equity, (2) incur additional indebtedness and issue preferred stock, (3) enter into transactions with affiliates, (4) enter new lines of business, (5) merge or consolidate with, or sell all or substantially all of its assets to, another person and (6) create liens. As of December 31, 2020, Cinemark USA, Inc. could have distributed up to approximately $2,800,000 to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the indenture governing the 5.125% Senior Notes, subject to its available cash and other borrowing restrictions outlined in the indenture. Upon a change of control, as defined in the indenture governing the 5.125% Senior Notes, Cinemark USA, Inc. would be required to make an offer to repurchase the 5.125% Senior Notes at a price equal to 101% of the aggregate principal amount outstanding plus accrued and unpaid interest, if any, through the date of repurchase. The indenture governing the 5.125% Senior Notes allows Cinemark USA, Inc. to incur additional indebtedness if it satisfies the coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances. The required minimum coverage ratio is 2.0 to 1.0 and the actual ratio as of December 31, 2020 was approximately below zero.

Cinemark USA, Inc. may redeem the 5.125% Senior Notes in whole or in part at redemption prices specified in the indenture.

8.750% Secured Notes

On April 20, 2020, Cinemark USA, Inc. issued $250,000 aggregate principal amount of 8.750% senior secured notes due 2025 (the “8.750% Secured Notes”).  The 8.750% Secured Notes will mature on May 1, 2025; provided, however, that if (i) on September 13, 2022, the aggregate outstanding principal amount of the 5.125% Senior Notes that shall not have been purchased, repurchased, redeemed, defeased or otherwise acquired, retired, cancelled or discharged exceeds $50,000, the 8.750% Secured Notes will mature on September 14, 2022 and (ii) on February 27, 2023, the aggregate outstanding principal amount of the 4.875% Senior Notes that shall not have been purchased, repurchased, redeemed, defeased or otherwise acquired, retired, cancelled or discharged exceeds $50,000, the 8.750% Secured Notes will mature on February 28, 2023. Interest on the 8.750% Secured Notes will be payable on May 1 and November 1 of each year, beginning on November 1, 2020.  

The 8.750% Secured Notes are fully and unconditionally guaranteed on a joint and several senior basis by certain of Cinemark USA, Inc.’s subsidiaries that guarantee, assume or in any other manner become liable with respect to any of Cinemark USA, Inc.’s or its guarantors’ other debt. If Cinemark USA, Inc. cannot make payments on the 8.750% Secured Notes when they are due, Cinemark USA, Inc.’s guarantors must make them instead. Under certain circumstances, the guarantees may be released without action by, or the consent of, the holders of the 8.750% Secured Notes.

The 8.750% Secured Notes and the guarantees are Cinemark USA, Inc.’s and its guarantors’ senior obligations and are:

 

rank effectively senior in right of payment to Cinemark USA, Inc.’s and its guarantors’ existing and future debt that is not secured by the collateral as described within the indentures governing the 8.750% Secured Notes (“Collateral”), including all obligations under the Credit Agreement, and unsecured obligations, including the existing senior notes, in each case to the extent of the value of the collateral;

 

rank effectively junior to Cinemark USA, Inc.’s and its guarantors’ existing and future debt secured by assets that are not part of the Collateral to the extent of the value of the collateral securing such debt, including all obligations under the Credit Agreement;

 

otherwise rank equally in right of payment to Cinemark USA, Inc.’s and its guarantors’ existing and future senior debt, including debt under the Credit Agreement and the existing senior notes;

 

rank senior in right of payment to Cinemark USA, Inc.’s and its guarantors’ future subordinated debt; and

 

be structurally subordinated to all existing and future debt and other liabilities of Cinemark USA, Inc.’s non-guarantor subsidiaries.

The indenture governing the 8.750% Secured Notes contains covenants that limit, among other things, the ability of Cinemark USA, Inc. and certain of its subsidiaries to (1) make investments or other restricted payments, including paying dividends, making other distributions or repurchasing subordinated debt or equity, (2) incur additional indebtedness and issue preferred stock, (3) enter into transactions with affiliates, (4) enter new lines of business, (5) merge or consolidate with, or sell all or substantially all of its assets to, another person and (6) create liens. As of December 31, 2020, Cinemark USA, Inc. could have distributed up to approximately $3,100,000 to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the indenture governing the 8.750% Senior Notes, subject to its available cash and other borrowing restrictions outlined in the indenture.  Upon a change of control, as defined in the indenture governing the 8.750% Secured Notes, Cinemark USA, Inc. would be required to make an offer to repurchase the 8.750% Secured Notes at a price equal to 101% of the aggregate principal amount outstanding plus accrued and unpaid interest, if any, through the date of repurchase. The indenture governing the 8.750% Secured Notes allows Cinemark USA, Inc. to incur additional indebtedness if it satisfies a coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances.  The required minimum coverage ratio is 2.0 to 1.0 and the actual ratio as of December 31, 2020 was below zero.  

4.50% Convertible Senior Notes

On August 21, 2020, Cinemark Holdings, Inc. issued $460,000 aggregate principal amount of 4.500% convertible senior notes due 2025 (the “4.50% Convertible Senior Notes”).  The 4.500% Convertible Senior Notes will mature on August 15, 2025, unless earlier repurchased or converted in accordance with the indenture.  Interest on the 4.500% Convertible Senior Notes is payable on February 15 and August 15 of each year, beginning on February 15, 2021.

Holders of the 4.50% Convertible Senior Notes may convert their 4.50% Convertible Senior Notes at their option at any time prior to the close of business on the business day immediately preceding May 15, 2025 only under the following circumstances: (1) during the five business day period after any five consecutive trading day period, or the measurement period, in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; (2) if the Company distributes to all or substantially all stockholders (i) rights options or warrants entitling them to purchase shares at a discount to the recent average trading price of the Company’s common stock (including due to a stockholder rights plan) or (ii) the Company’s assets or securities or rights, options or warrants to purchase the same with a per share value exceeding 10% of the trading price of the Company’s stock, (3) upon the occurrence of specified corporate events as described further in the indenture, or (4) during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price (initially 14.35 per share), on each applicable trading day. Beginning May 15, 2025, holders may convert their 4.500% Convertible Senior Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date. Upon conversion of the 4.500% Convertible Senior Notes, the Company will pay or deliver cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election.

The initial conversion rate is 69.6767 shares of the Company’s common stock per $1,000 principal amount of the 4.50% Convertible Senior Notes. The conversion rate is subject to adjustment upon the occurrence of certain events. If a make-whole fundamental change as defined in the indenture governing the 4.50% Convertible Senior Notes occurs prior to the maturity date, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 4.50% Convertible Senior Notes in connection with such make-whole fundamental change.

The 4.500% Convertible Senior Notes are effectively subordinated to any of the Company’s, or its subsidiaries’, existing and future secured debt to the extent of the value of the assets securing such indebtedness, including obligations under the Credit Agreement. The 4.500% Convertible Senior Notes are structurally subordinated to all existing and future debt and other liabilities of our subsidiaries, including trade payables and

including Cinemark USA’s 5.125% Senior Notes, 4.875% Senior Notes and the 8.750% Secured Notes, or, collectively, Cinemark USA’s senior notes (but excluding all obligations under the Credit Agreement which are guaranteed by the Company). The 4.500% Convertible Senior Notes rank equally in right of payment with all of the Company’s existing and future unsubordinated debt, including all obligations under the Credit Agreement, which such Credit Agreement is guaranteed by the Company, and senior in right of payment to any future debt that is expressly subordinated in right of payment to the 4.500% Convertible Senior Notes.  The 4.500% Convertible Notes are not guaranteed by any of Cinemark Holdings, Inc.’s subsidiaries.  

In accordance with accounting guidance on debt and equity financing, the Company bifurcated the gross proceeds from the issuance of 4.500% Convertible Senior Notes and recorded a portion as long-term debt and a portion in equity.  The long-term debt value was based on the fair value of the debt, determined as the present value of principal and interest payments assuming a market interest rate for similar debt that excluded a conversion feature.  The difference between the face value of the 4.500% Convertible Senior Notes and the fair value is referred to as the debt discount, and represents the amount allocated to equity.  The debt discount is being amortized to interest expense at an effective interest rate of 10.00% over the contractual terms of the notes.

Concurrently with the issuance of the 4.500% Convertible Senior Notes, the Company entered into privately negotiated convertible note hedge transactions (the “Hedge Transactions”) with one or more of the initial purchasers of the 4.500% Convertible Senior Notes or their respective affiliates (the “Option Counterparties”).  The Hedge Transactions cover the number of shares of the Company’s common stock that will initially underlie the aggregate amount of the 4.50% Convertible Senior Notes, subject to anti-dilution adjustments substantially similar to those applicable to the 4.50% Convertible Senior Notes. The Hedge Transactions are generally expected to reduce potential dilution to the Company’s common stock upon any conversion of the 4.500% Convertible Senior Notes and/or offset any cash payments the Company may be required to make in excess of the principal amount of converted 4.50% Convertible Senior  Notes, as the case may be. Concurrently with entering into the Hedge Transactions, the Company also entered into separate privately negotiated warrant transactions with Option Counterparties whereby it sold to Option Counterparties warrants to purchase (subject to the net share settlement provisions set forth therein) up to the same number of shares of the Company’s common stock, subject to customary anti-dilution adjustments (the “Warrant Transactions”). The warrants could separately have a dilutive effect to the extent that the market value per share of the Company’s common stock exceeds the strike price of the warrants on the applicable expiration dates unless, subject to the terms of the warrants, the Company elects to cash settle the warrants. The exercise price of the warrants is initially $22.08 and is subject to certain adjustments under the terms of the warrants.  The Company received $89,424 in cash proceeds from the Warrant Transactions, which were used along with proceeds from the 4.50% Convertible Senior Notes, to pay approximately $142,094 to enter into the Hedge Transactions.  The tax impact of the conversion option and the Hedge Transactions and the Warrant Transactions amounted to $10,915 and was recorded in additional paid-in-capital.

Together, the Hedge Transactions and the Warrants are intended to reduce the potential dilution from the conversion of the 4.500% Convertible Senior Notes.  The Hedge Transactions and Warrants are recorded in equity and are not accounted for as derivatives, in accordance with applicable accounting guidance.  

Additional Borrowings of International Subsidiaries

During the year ended December 31, 2020, certain of the Company’s international subsidiaries borrowed an aggregate of USD $22,322 under various local loans.  Below is a summary of these loans:

 

 

Loan Amounts

 

 

 

 

 

 

 

 

 

Loan Description(s)

 

(in USD)

 

 

Interest Rates

 

 

Applicable Covenants

 

Maturity

Colombia (3 loans)

 

$

4,437

 

 

3.25% to 5.85% plus variable

 

 

Negative and ratio covenants

 

May 2023

September 2025

Peru loan

 

$

2,913

 

 

1.5%

 

 

Negative covenants

 

September 2023

Brazil (3 loans)

 

$

8,986

 

 

1.59% to 8.08%

 

 

Negative covenants

 

November 2021

October 2023

Chile loan

 

$

5,986

 

 

0.29%

 

 

Negative covenants

 

November 2023

 

 

Fair Value of Long Term Debt

The Company estimates the fair value of its long-term debt primarily using quoted market prices, which fall under Level 2 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35. The carrying value of the Company’s long term debt was $1,801,327 and $2,527,900 as of December 31, 2019 and 2020. The fair value of the Company’s long term debt was $$1,826,503 and $2,652,635 as of December 31, 2019 and 2020, respectively.

Covenant Compliance and Debt Maturity

As of December 31, 2020, the Company believes it was in full financial compliance with all agreements, including related covenants, governing its outstanding debt.

The Company’s long-term debt, excluding unamortized debt issuance costs, at December 31, 2020 matures as follows:

 

2021

 

$

18,056

 

2022

 

 

413,068

 

2023

 

 

766,347

 

2024

 

 

6,886

 

2025

 

 

1,323,543

 

Thereafter

 

 

 

Total

 

$

2,527,900

 

Interest Rate Swap Agreements

Effective March 31, 2020, the Company amended and extended its three then existing interest rate swap agreements and entered into a fourth interest rate swap agreement, all of which are used to hedge a portion of the interest rate risk associated with the variable interest rates on the Company’s term loan debt and qualify for cash flow hedge accounting. Upon amending the interest rate swap agreements effective March 31,2020, the Company determined that the interest payments hedged with the agreements are still probable to occur, therefore the loss that accumulated on the swaps prior to the amendments of $29,359 is being amortized to interest expense through December 31, 2022, the original maturity dates of the swaps.  Approximately $3,371 was recorded in amortization of accumulated losses for amended swaps in the condensed consolidated income statement for the year ended December 31, 2020.

The fair values of the interest rate swaps are recorded on the Company’s consolidated balance sheet as an asset or liability with the related gains or losses reported as a component of accumulated other comprehensive loss. The changes in fair value are reclassified from accumulated other comprehensive loss into earnings in the same period that the hedged items affect earnings.  The valuation technique used to determine fair value is the income approach and under this approach, the Company uses projected future interest rates as provided by counterparty to the interest rate swap agreement and the fixed rates that the Company is obligated to pay under the agreement. Therefore, the Company’s measurements use significant unobservable inputs, which fall in Level 2 of the U.S. GAAP hierarchy as defined by FASB ASC Topic 820-10-35.

Below is a summary of the Company’s interest rate swap agreements designated as cash flow hedges as of December 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value at

 

Notional

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

Amount

 

 

Effective Date

 

Pay Rate

 

 

Receive Rate

 

Expiration Date

 

2020 (1)

 

$

137,500

 

 

December 31, 2018

 

2.12%

 

 

1-Month LIBOR

 

December 31, 2024

 

$

9,905

 

$

175,000

 

 

December 31, 2018

 

2.12%

 

 

1-Month LIBOR

 

December 31, 2024

 

 

12,721

 

$

137,500

 

 

December 31, 2018

 

2.19%

 

 

1-Month LIBOR

 

December 31, 2024

 

 

10,416

 

$

150,000

 

 

March 31, 2020

 

0.57%

 

 

1-Month LIBOR

 

March 31, 2022

 

 

805

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

33,847

 

 

(1)

Approximately $9,516 is included in accrued other current liabilities and $24,331 is included in other long-term liabilities on the consolidated balance sheet as of December 31, 2020.