Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk in the ordinary course of business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates and foreign currency exchange risk. We do not hold or issue financial instruments for speculative or trading purposes.
Interest rate risk
We hold cash and cash equivalents for working capital purposes. We do not have material exposure to market risk with respect to investments. We have mitigated a majority of our market risks related to fluctuations in interest rates on amounts borrowed under the Credit Facility by entering into interest rate swap agreements, which cover $425.0 million of our $532.1 million outstanding under our Term Loan as of December 31, 2024. Following an amendment in December 2024, the Term Loan bears interest, at the borrower’s election, at (x) a forward-looking term rate based upon SOFR plus an applicable margin of 2.50%, with a minimum forward-looking SOFR rate 0.50% or (y) ABR plus an applicable margin of 1.50%, with a minimum ABR of 1.50%, in each case, with no step-downs. As of December 31, 2024, we had no amounts outstanding under our Revolving Loan.
Beginning in late 2022, we executed a series of three interest rate swaps (for total notional amounts of $425 million) to convert a portion of the floating rate component of our Term Loan to a fixed rate. Effective October 31, 2022, the Company entered into the Initial Swap in connection with the Company’s Credit Facilities for a notional amount of $200.0 million. The Initial Swap has a term of five years with a fixed rate in the agreement of 4.2120%, as amended in June 2023. Additionally, effective March 31, 2023, the Company entered into a Second Swap in connection with the Company’s Credit Facilities for a notional amount of $100.00 million. The Second Swap agreement has a term of approximately 4.5 years with a fixed rate in the agreement of 3.951%, as amended in June 2023. On September 20, 2024, the Company entered into a Third Swap in connection with the Company’s Credit Facilities for a notional amount of $125.0 million. The Third Swap agreement has a term of approximately 3.0 years with a fixed rate in the agreement of 3.395%.
Based on the outstanding balance of the Credit Facilities as of December 31, 2024, for every 100 basis point increase in the Adjusted SOFR rate, we would incur approximately $1.1 million of additional annual interest expense.
Foreign currency exchange risk
We have foreign currency risks related to certain of our foreign subsidiaries, primarily in Canada, Jordan, the United Kingdom, New Zealand and Australia. The functional currencies of our significant foreign operations include the Canadian dollar, Great British pound, Australian dollar and the New Zealand dollar. We do not believe that a 10% change in the relative value of the U.S. dollar to other foreign currencies would have a material effect on our cash flows and operating results.
We currently do not hedge foreign currency exposure. We may in the future hedge our foreign currency exposure and may use currency forward contracts, currency options or other common derivative financial instruments to reduce foreign currency risk. It is difficult to predict the effect that future hedging activities would have on our operating results.
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