Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our future income, cash flows, and estimated fair values of our financial instruments depend in part upon prevailing market interest rates. Market risk is the exposure to loss resulting from changes in interest rates, foreign currency, exchange rates, commodity prices, and equity prices. As of December 31, 2022, our potential for exposure to market risk includes interest rate fluctuations in connection with borrowings under our $600 Million Unsecured 2022 Line of Credit and the $200 Million Unsecured 2022 Term Loan Facility. As a result, the primary market risk to which we believe we are exposed is interest rate risk. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control contribute to interest rate risk, including changes in the method pursuant to which LIBOR rates and SOFR rates are determined. Furthermore, the United Kingdom Financial Conduct Authority, which regulates LIBOR, has announced that USD LIBOR will no longer by published after June 30, 2023. Piedmont has completed an evaluation of its credit agreements which reference LIBOR and determined that each of these agreements already contain "fallback" language allowing for the establishment of an alternate rate of interest that gives due consideration to the then prevailing market convention for determining a rate of interest for syndicated loans in the U.S. at that time by Piedmont and the respective agent, as defined in the respective agreements. In addition, all new unsecured debt agreements entered into during the year ended December 31, 2022 utilize SOFR as the reference rate.
Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flow primarily through a low-to-moderate level of overall borrowings, as well as managing the variability in rate fluctuations on our outstanding debt. As such, all of our debt as of December 31, 2022, other than the $600 Million Unsecured 2022 Line of Credit and our $200 Million Unsecured Term Loan Facility, is currently based on fixed or effectively-fixed interest rates to hedge against volatility in the credit markets. We do not enter into derivative or interest rate transactions for speculative purposes, as such all of our debt and derivative instruments were entered into for purposes other than trading purposes.
Our financial instruments consist of both fixed and variable-rate debt. As of December 31, 2022, our consolidated principal outstanding for aggregate debt maturities consisted of the following (in thousands):
2023 2024 2025 2026 2027 Thereafter Total
Maturing debt:
Variable rate repayments $ — $ 200,000 (2)
$ — $ — $ — $ — $ 200,000
Variable rate average interest rate (1)
— % 5.42 % — % — % — % — % 5.42 %
Fixed rate repayments $ 350,000 $ 400,000 $ 250,000 (3)
$ — $ — $ 797,000 $ 1,797,000
Fixed rate average interest rate (1)
3.40 % 4.45 % 4.54 % — % — % 3.23 % 3.72 %
(1) See Note 4 to our accompanying consolidated financial statements for further details on our debt structure.
(2) We may extend the term for six additional months to a final extended maturity date of June 18, 2025, provided we are not then in default and all representations and warranties are true and correct in all material respects and upon payment of extension fees.
(3) Includes the $250 Million Unsecured 2018 Term Loan. The facility has a stated variable rate; however, Piedmont's interest rate swap agreements as of December 31, 2022 effectively fix, exclusive of changes to Piedmont's credit rating, the full principal balance to 4.54% through the maturity date of the loan.
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Index to Financial Statements
The estimated fair value of our debt above as of December 31, 2022 and 2021 was approximately $1.8 billion and $1.9 billion, respectively. Our interest rate swap agreements in place as of December 31, 2022 carried a notional amount of $250 million and a weighted-average fixed interest rate of 4.54%, whereas the interest rate swap agreements in place as of December 31, 2021 carried a notional amount totaling $100 million and a weighted-average fixed interest rate of 3.56%.
As of December 31, 2022, our total outstanding debt subject to fixed, or effectively fixed, interest rates totaling approximately $1.8 billion has an average effective interest rate of approximately 3.72% per annum with expirations ranging from 2023 to 2032. A change in the market interest rate impacts the net financial instrument position of our fixed-rate debt portfolio but has no impact on interest incurred or cash flows for that portfolio.
As of December 31, 2022, we had no outstanding balance on our $600 Million Unsecured 2022 Line of Credit. Our $600 Million Unsecured 2022 Line of Credit currently has a stated rate of Adjusted SOFR plus 0.85% per annum (based on our current corporate credit rating). Our $200 Million Unsecured Term Loan Facility has a stated rate of Adjusted SOFR plus 1.00% per annum (based on our current corporate credit rating), resulting in a total interest rate of 5.42%. To the extent that we borrow funds in the future under the $600 Million Unsecured 2022 Line of Credit or potential future variable-rate lines of credit, we would have exposure to increases in interest rates, which would potentially increase our cost of debt. Additionally, a 1.0% increase in variable interest rates on our existing outstanding borrowings as of December 31, 2022 would increase interest expense approximately $2.0 million on a per annum basis.