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Based upon the nature of our operations, the principal market risk to which we are exposed is the risk related to interest rate fluctuations.
−Removed: As of December 31, 2020, we had total indebtedness of approximately $175.0 million, which is floating rate debt with a variable interest rate.
−Removed: Further, during 2020, we had average daily outstanding borrowings on our Revolver of $6.6 million.
+Added: As of December 31, 2021, we had total indebtedness of approximately $175.0 million under the Term Loan and $64.0 million of borrowings under the Revolver, both of which are floating rate debt with a variable interest rate.
+Added: For the years ended December 31, 2021 and 2020, we had average daily outstanding borrowings on our Revolver of $12.4 million and $6.6 million, respectively.
On September 28, 2020 and effective through the maturity date of December 23, 2024, the Company entered into an interest rate derivative in order to hedge its market interest risk associated with the Term Loan.
−Removed: The interest rate derivative converts the variable rate debt on the Term Loan to a fixed interest rate of 0.21%, plus a margin of 1.15% as of December 31, 2020.
+Added: The interest rate derivative converts the variable rate debt on the Term Loan to a fixed interest rate of 0.21%, plus a margin of 1.15%.
Additionally, we occasionally fund acquisitions through the use of our Revolver which bears an interest rate determined by either (i) LIBOR, plus a margin ranging from 1.20% to 1.80%, based on the Company’s consolidated total leverage ratio, or (ii) a Base Rate (as defined in the Credit Facility), plus a margin ranging from 0.20% to 0.80%, based on the Company’s consolidated total leverage ratio.
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Based on the results of our sensitivity analysis and daily outstanding borrowings on the Revolver during 2021, which assumes a 1% adverse change in the interest rate as of December 31, 2021, the estimated market risk exposure for the Revolver was less than $0.2 million.
−Removed: In July 2017, the Financial Conduct Authority, or FCA (the authority that regulates LIBOR), announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021.
−Removed: The Alternative Reference Rates Committee, or ARRC, has identified the Secured Overnight Financing Rate, or SOFR, as the preferred alternative to LIBOR for use in derivatives and other financial contracts that are currently indexed to LIBOR.
−Removed: We are not able to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets.
+Added: On March 5, 2021, the FCA announced that USD LIBOR will no longer be published after June 30, 2023.
+Added: This announcement has several implications, including setting the spread that may be used to automatically convert contracts from LIBOR to the SOFR.
+Added: Additionally, banking regulators are encouraging banks to discontinue new LIBOR debt issuances by December 31, 2021.
+Added: The Company anticipates that LIBOR will continue to be available at least until June 30, 2023.
Any changes adopted by the FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR.
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In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form.
−Removed: As of December 31, 2020, the Company’s Term Loan and Revolver, which mature on December 23, 2024 and December 23, 2023, respectively, are indexed to LIBOR.
+Added: The Company’s Term Loan and Revolver, which mature on December 23, 2024 and December 23, 2023, respectively, are indexed to LIBOR, and provide for procedures for determining an alternative base rate.
The Company continues to monitor and evaluate the related risks, including future negotiations with lenders and other counterparties.
−Removed: While we expect LIBOR to be available in substantially its current form until the end of 2021, it is possible that LIBOR will become unavailable prior to that point.
+Added: These risks arise in connection with transitioning contracts to an alternative rate, including any resulting value transfer that may occur, and are likely to vary by contract.
+Added: The value of loans, securities, or derivative instruments tied to LIBOR, as well as interest rates on our current or future indebtedness, may also be impacted if LIBOR is limited or discontinued.
+Added: For some instruments the method of transitioning to an alternative reference rate may be challenging, especially if we cannot agree with the respective counterparty about how to make the transition.
+Added: While we expect LIBOR to be available in substantially its current form until at least the end of June 30, 2023, it is possible that LIBOR will become unavailable prior to that point.
This could result, for example, if sufficient banks decline to make submissions to the LIBOR administrator.
−Removed: In that case, the transition to an alternative reference rate could be accelerated.
+Added: In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified.
+Added: Alternative rates and other market changes related to the replacement of LIBOR, including the introduction of financial products and changes in market practices, may lead to risk modeling and valuation challenges, such as adjusting interest rate accrual calculations and building a term structure for an alternative rate.
+Added: The introduction of an alternative rate also may create additional basis risk and increased volatility as alternative rates are phased in and utilized in parallel with LIBOR.
+Added: Adjustments to systems and mathematical models to properly process and account for alternative rates will be required, which may strain the model risk management and information technology functions and result in substantial incremental costs for the company.
Off-Balance Sheet Arrangements
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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.