Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 3.
Quantitative and Qualitative Disclosures About Market
Risk.
We have evaluated
the information required under this Item that was disclosed in Part II, Item 7A, of our Annual Report on
Form
10-K for the year ended December 31, 2021, and we believe there has been
no material change to that information, except the interest
rate risk noted below.
Interest Rate Risk.
The Company’s exposure
to interest rate risk relates primarily to its outstanding borrowings under its credit facility.
During June
2022, the Company entered into an amendment to its primary credit facility
(the “Original Credit Facility”, or as amended, the
“Amended Credit Facility”).
See Note 14 of Notes to Condensed Consolidated Financial Statements, which appears
in Item 1 of this
Report.
As of June 30, 2022, borrowings under the Amended Credit Facility bear interest at either
term SOFR or a base rate, in each
case, plus an applicable margin based upon the Company’s
consolidated net leverage ratio, and, in the case of term SOFR, a spread
adjustment equal to 0.10% per annum.
As a result of the variable interest rates applicable under the Amended Credit Facility,
if
interest rates rise significantly,
the cost of debt to the Company will increase.
This can have an adverse effect on the Company,
depending on the extent of the Company’s
borrowings outstanding throughout a given year.
As of June 30, 2022, the Company had outstanding borrowings under the
Amended Credit Facility of approximately $977.6
million.
The interest rate applicable on outstanding borrowings under the Amended
Credit Facility was approximately 2.8% as of
June 30, 2022.
As of December 31, 2021, the Company had outstanding borrowings under the
Original Credit Facility of
approximately $889.6 million. The variable interest rate incurred on the outstanding
borrowings under the Original Credit Facility
during the year ended December 31, 2021 was approximately 1.6%.
If interest rates had changed by 10% during 2021, the
Company’s interest expense for
the period ended December 31, 2021 on its credit facilities, including the Original
Credit Facility
borrowings outstanding post-closing of the Combination, would have correspondingly
increased or decreased by approximately $1
million.
Likewise, if interest rates had changed by 10% during the six month period ended June
30, 2022, the Company’s interest
expense for the six month period ended June 30, 2022 on its credit facilities, including
the Amended Credit Facility borrowings
outstanding, would have correspondingly increased or decreased by approximately
$2 million.
The Original Credit Facility required the Company to fix its variable interest rates on
at least 20% of its total term loans.
In order
to satisfy this requirement as well as to manage the Company’s
exposure to variable interest rate risk associated with the Original
Credit Facility, in November
2019, the Company entered into $170.0 million notional amounts of
three year interest rate swaps at a
base rate of 1.64% plus an applicable margin as provided in
the Original Credit Facility, based on
the Company’s consolidated
net
leverage ratio.
At the time the Company entered into the swaps, and as of June 30, 2022, the aggregate
interest rate on the swaps,
including the fixed base rate plus an applicable margin,
was 3.1%.
The Amended Credit Facility does not require the Company to fix
variable interest rates on any portion of its borrowings.
44