Annual report [Section 13 and 15(d), not S-K Item 405]

Financial Instruments

v3.25.0.1
Financial Instruments
 12 Months Ended
Dec. 31, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Financial Instruments
18. Financial Instruments:
The Company uses interest rate related derivative instruments to manage its exposure to changes in interest rates on its variable-rate debt instruments. The Company does not speculate using derivative instruments.
By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is an asset, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative contract is a liability, the Company owes the counterparty and therefore, the Company is not exposed to the counterparty’s credit risk in those circumstances. The Company minimizes counterparty credit risk in derivative instruments by entering into transactions with high quality counterparties. The derivative instruments entered into by the Company do not contain credit-risk-related contingent features.
Market risk is the adverse effect on the value of a derivative instrument that results from a change in interest rates. The market risk associated with the Company’s derivative instruments is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.
Use of Derivative Financial Instruments to Manage Interest Rate Risk. The Company is exposed to fluctuations in interest rates on its senior secured credit facilities. Changes in interest rates will not affect the market value of such debt but will affect the Company’s interest payments over the term of the loans. Likewise, an increase in interest rates could have a material impact on the Company’s consolidated statements of cash flows. The Company hedges the interest rate fluctuations on debt obligations through interest rate cap agreements. The Company records these agreements at fair value as assets or liabilities in the consolidated balance sheets. As the derivatives are designated and qualify as cash flow hedges, the gains or losses on the interest rate cap agreements are recorded in stockholders’ equity as a component of other comprehensive income, net of tax. Reclassifications of the gains and losses on the interest rate cap agreements into earnings are recorded as part of interest expense in the consolidated statements of income as the Company makes its interest payments on the hedged portion of its senior secured credit facilities. Fair value is determined based on estimated amounts that would be received or paid to terminate the contracts at the reporting date based on quoted market prices.
The following table provides a summary of the Company’s interest rate cap agreements:
Financial instrument Number of instruments
In effect as of December 31, 2024
 Current notional amount of instruments in effect Annuitized premium of instruments in effect
Interest rate cap 4 3 $ 625,000  $ 35,285 
The current notional amounts of the three interest rate cap agreements in effect at December 31, 2024 are $250,000, $175,000 and $200,000. The Company entered into a $250,000 interest rate cap to mitigate interest rate volatility from September 2023 to October 2025, a $175,000 interest rate cap agreement to mitigate interest rate volatility from August 2024 to July 2026 and a $200,000 interest rate cap agreement to mitigate interest rate volatility from November 2024 to October 2025. The Company had a $150,000 interest rate cap agreement to mitigate interest rate volatility from August 2023 to July 2024. The $200,000 interest rate cap agreement will increase to $450,000 to mitigate interest rate volatility from November 2025 to October 2026. The cap rates in effect at December 31, 2024 was 1.00%.
The Company also entered into a $200,000 forward starting interest rate cap agreement to mitigate interest volatility from August 2026 to July 2028.
In February 2023, the Company amended all existing interest rate cap agreements to replace LIBOR with SOFR as the benchmark interest rate, with all other terms of the agreements remaining the same. This amendment changed the previously annuitized premiums on the existing interest rate cap agreements.
The fair values of derivative instruments held as of December 31, 2024 and 2023, respectively are shown below:
December 31,
Balance sheet location 2024 2023
Derivative assets:
Derivatives designated as cash flow hedges:
Interest rate caps Prepaid and other current assets $ 6,532  $ 13,419 
Interest rate caps Other long-term assets 5,968  5,602 
Total derivative assets $ 12,500  $ 19,021 
Derivative liabilities:
Derivatives designated as cash flow hedges:
Interest rate caps Accrued liabilities $ 235  $ — 
Interest rate caps Other long-term liabilities 475  2,496 
Total derivative liabilities $ 710  $ 2,496 
The following tables show the effect of the Company’s derivative instruments designated as cash flow hedges on AOCI and the consolidated statements of income for the years ended December 31, 2024, 2023 and 2022, respectively:
Amount of gain (loss) recognized in OCI
December 31,
2024 2023
Interest rate caps $ 13,672  $ 5,419 
Amount of gain (loss) reclassified from AOCI
December 31,
2024 2023
Interest rate caps $ (17,197) $ (22,731)
Amount of (gain) loss reclassified into Income
Years ended December 31,
2024 2023 2022
Interest rate caps $ 17,197  $ 22,731  $ (683)

The following table shows the amounts for the line items presented on the consolidated statements of income in which the effects of cash flow hedges are recorded for the years ended December 31, 2024, 2023 and 2022, respectively:
Years ended December 31,
Location and amount of gain (loss) recognized in income on cash flow hedging relationships 2024 2023 2022
Derivatives designated as cash flow hedges:
Interest rate caps Interest (expense) income $ (49,426) $ (44,730) $ (37,217)

The amount of net unrealized gains in AOCI related to the Company’s cash flow hedges that is expected to be reclassified to the consolidated statement of income over the next twelve months is $6,893 as of December 31, 2024.