QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
−Removed: We are exposed to market risks primarily from changes in interest rates and changes in the market value of our investments.
−Removed: Market Risk and Interest Rate Risk
−Removed: We have exposure to changes in interest rates associated with borrowings under our bank credit facility, which has variable interest rates tied to LIBOR or an alternate base rate, at our option.
+Added: We are exposed to market risks primarily from changes in interest rates and foreign currency exchange rates and changes in the market value of our investments.
+Added: We use certain derivative instruments to hedge a portion of the interest rate and foreign currency exchange rate risks.
+Added: Interest Rate Risk
+Added: We have exposure to changes in interest rates associated with borrowings under our senior secured credit facility, which has variable interest rates tied to Term SOFR or an alternate base rate, at our option.
At December 31, 2022, we had borrowings outstanding under the credit facility totaling $290.0 million that carried a weighted average interest rate of 3.8% including the impact of the interest rate swaps described below.
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At December 31, 2021, we had borrowings outstanding under the credit facility totaling $230.0 million that carried a weighted average interest rate of 2.7%, including the impact of the interest rate swaps.
−Removed: As of December 31, 2020, these variable rate borrowings were fully hedged against changes in interest rates by the interest rate swaps, which have a notional amount of $200.0 million.
−Removed: A hypothetical 100 basis point change in the interest rate would have no impact on our pretax income, on an annualized basis, including the effect of the interest rate swaps.
−Removed: On June 22, 2017, we entered into a forward interest rate swap agreement effective August 31, 2017 and ending August 31, 2022, with a notional amount of $50.0 million.
−Removed: We entered into this derivative instrument to hedge against the interest rate risks of our variable-rate borrowings.
−Removed: Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount based on one month LIBOR and we pay to the counterparty a fixed rate of 1.900%.
−Removed: On January 30, 2020, we entered into a forward interest rate swap agreement effective December 31, 2019 and ending December 31, 2024, with a notional amount of $50.0 million.
−Removed: We entered into this derivative instrument to further hedge against the interest rate risks of our
−Removed: variable-rate borrowings.
−Removed: Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount based on one month LIBOR and we pay to the counterparty a fixed rate of 1.500%.
−Removed: On March 16, 2020, we entered into a forward interest rate swap agreement effective February 28, 2020 and ending February 28, 2025, with a notional amount of $100.0 million.
−Removed: We entered into this derivative instrument to further hedge against the interest rate risks of our variable-rate borrowings.
−Removed: Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount based on one month LIBOR and we pay to the counterparty a fixed rate of 0.885%.
−Removed: We also have exposure to changes in interest rates associated with the promissory note assumed on June 30, 2017 in connection with our purchase of an aircraft, which has variable interest rates tied to LIBOR.
−Removed: At December 31, 2021, the outstanding principal amount of the promissory note was $2.8 million and carried an interest rate of 2.1%.
−Removed: A hypothetical 100 basis point change in this interest rate would not have a material effect on our pretax income.
−Removed: At December 31, 2020 the outstanding principal amount of the promissory note was $3.3 million and carried an interest rate of 2.1%.
−Removed: A hypothetical 100 basis point change in the interest rate as of December 31, 2020 would not have had a material effect on our pretax income.
−Removed: In the first quarter of 2022, we completed the sale of the aircraft to a third-party and used a portion of the sale proceeds to pay the remaining principal and unpaid interest on the promissory note.
−Removed: As a result of the sale, we no longer own any aircraft.
−Removed: In 2017, the Financial Conduct Authority (FCA) in the U.K.
−Removed: announced that it would phase out LIBOR as a benchmark rate by the end of 2021.
−Removed: In March 2021, the ICE Benchmark Administration Limited, the administrator of LIBOR, extended the transition dates of certain LIBOR tenors (including all U.S.
−Removed: Dollar LIBOR tenors other than one-week and two-month U.S.
−Removed: Dollar LIBOR tenors) to June 30, 2023, after which LIBOR reference rates will cease to be provided.
−Removed: Our Amended Credit Agreement and interest rate swap agreements provide for any transitions away from LIBOR to a successor rate to be based on prevailing or equivalent standards.
−Removed: We do not use derivative instruments for trading or other speculative purposes.
−Removed: From time to time, we invest excess cash in short-term marketable securities.
−Removed: These investments principally consist of overnight sweep accounts.
−Removed: Due to the short maturity of these investments, we concluded that we do not have material market risk exposure.
+Added: A hypothetical 100 basis point change in the interest rate would have had a $0.3 million effect on our full year pretax income, including the effect of the interest rate swaps and our borrowings outstanding as of December 31, 2021.
+Added: We enter into forward interest rate swap agreements to hedge against the interest rate risks of our variable-rate borrowings.
+Added: Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount based on one month Term SOFR and we pay to the counterparty a stated, fixed rate.
+Added: As of December 31, 2022 and December 31, 2021, the aggregate notional amount of our forward interest rate swap agreements was $200.0 million.
+Added: The outstanding interest rate swap agreements as of December 31, 2022 are scheduled to mature on a staggered basis through August 31, 2027.
+Added: Foreign Currency Risk
+Added: We have exposure to changes in foreign currency exchange rates between the U.S.
+Added: Dollar (USD) and the Indian Rupee (INR) related to our operations in India.
+Added: We hedge a portion of our cash flow exposure related to our INR-denominated intercompany expenses by entering into non-deliverable foreign exchange forward contracts.
+Added: These foreign exchange forward contracts have an aggregate notional amount of INR
+Added: 657.9 million, or $8.0 million based on the exchange rate in effect as of December 31, 2022, and are scheduled to mature monthly through September 2023.
+Added: We use a sensitivity analysis to determine the effects that market foreign currency exchange rate fluctuations may have on the fair value of our foreign currency exchange rate hedge portfolio.
+Added: The sensitivity of the hedge portfolio is computed based on the market value of future cash flows as affected by changes in exchange rates.
+Added: This sensitivity analysis represents the hypothetical changes in value of the hedge position and does not reflect the offsetting gain or loss on the underlying exposure.
+Added: A hypothetical 100 basis point change in the foreign currency exchange rate between the USD and INR would have an immaterial impact on the fair value of our hedge instruments as of December 31, 2022.
We have a 1.69% convertible debt investment in Shorelight Holdings, LLC, a privately-held company, which we account for as an available-for-sale debt security.
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Any unrealized holding gains and losses resulting from observable price changes are recorded in our consolidated statement of operations.
−Removed: As of December 31, 2021 and 2020, the carrying value of the investment was $6.7 million, with a total cost basis of $5.0 million.
+Added: As of December 31, 2022, the carrying value of the investment was $33.6 million, with a total cost basis of $5.0 million.
+Added: As of December 31, 2021, the carrying value of the investment was $6.7 million, with a total cost basis of $5.0 million.
+Added: During the first quarter of 2022, we recognized an unrealized gain of $27.0 million on our preferred stock investment resulting from an observable price change of preferred stock with similar rights and preferences to our preferred stock investment issued by Medically Home.
Following our purchase, we have not identified any impairment of our investment.
+Added: We do not use derivative instruments for trading or other speculative purposes.
+Added: From time to time, we invest excess cash in short-term marketable securities.
+Added: These investments principally consist of overnight sweep accounts.
+Added: Due to the short maturity of these investments, we have concluded that we do not have material market risk exposure.
+Added: Refer to Note 12 “Derivative Instruments and Hedging Activity” within the notes to our consolidated financial statements for additional information on our derivative instruments.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.