QUAKER CHEMICAL CORP 10-Q

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 information 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 September 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 September 30, 2022, the Company had outstanding borrowings under the Amended Credit Facility of approximately $941.2 million. The interest rate applicable on outstanding borrowings under the Amended Credit Facility was approximately 3.8% as of September 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 nine month period ended September 30, 2022, the Company’s interest expense for the nine month period ended September 30, 2022 on its credit facilities, including the Amended Credit Facility borrowings outstanding, would have correspondingly increased or decreased by approximately $2.2 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 September 30, 2022, the aggregate interest rate on the swaps, including the fixed base rate plus an applicable margin, was 3.1%. In October 2022, the Company’s interest rate swap contracts expired. Upon expiration, the Company is entitled to a cash payment from the counterparties, which is materially consistent with the fair value as of September 30, 2022. The Amended Credit Facility does not require the Company to fix variable interest rates on any portion of its borrowings. 45