Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We enter into debt obligations primarily to support general corporate purposes, including the operations of our subsidiaries. We are subject to interest rate risk on our long-term debt. For fixed rate debt, changes in interest rates generally affect the fair value of the debt instrument, but not our earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument, but may affect our future earnings and cash flows. We generally have no obligation to prepay our fixed rate debt before maturity, and, as a result, interest rate risk and changes in fair market value should not have a significant impact on our fixed rate debt until we are required or elect to refinance or repurchase such debt. Under our current policies, we do not use interest rate derivative instruments to manage our exposure to changes in interest rates.
The following tables present principal cash flows by scheduled maturity, weighted average effective interest rates and the estimated fair value of debt obligations as of May 31, 2022 (dollars in thousands):
As of May 31, 2022 and for the Years Ending November 30, Fair Value at
May 31, 2022
2022 2023 2024 2025 2026 Thereafter Total
Long-term debt
Fixed Rate $ 350,000 $ 350,000 $ — $ — $ — $ 990,000 $ 1,690,000 $ 1,633,863
Weighted Average Effective Interest Rate 7.7 % 7.5 % — % — % — % 5.3 % 6.2 %
Variable rate (a) $ 400,000 $ — $ — $ — $ — $ — $ 400,000 $ 400,000
Weighted Average Effective Interest Rate 2.3 % — % — % — % — % — % 2.3 %
(a) The interest rate for our variable rate debt, which is comprised of borrowings outstanding under our Credit Facility, represents the weighted average interest rate in effect at May 31, 2022. Based upon the amount of variable rate debt outstanding at May 31, 2022, and holding the variable rate debt balance constant, each 100-basis point increase in interest rates would increase the interest we incur by approximately $4.0 million per year.
Unconsolidated Joint Ventures. The table above does not include debt of our unconsolidated joint ventures. For a discussion pertaining to the debt of our homebuilding and financial services unconsolidated joint ventures, see Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report.
Our financial services unconsolidated joint venture, KBHS, is exposed to interest rate risk as it relates to its lending activities, including originating mortgage loans and providing IRLCs to customers. KBHS enters into best efforts forward sale commitments with secondary market investors to manage the risk of adverse interest rate movements that could impact the fair value of IRLCs. Best efforts forward sale commitments allow KBHS to agree on the sales price of the underlying loans that will be realized upon their sale into the secondary market. KBHS does not engage in speculative or trading derivative activities. All of KBHS’ loan portfolio is held for sale and subject to best efforts forward sale commitments. Further information is provided in Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.