RadNet, Inc. 10-Q

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk Interest Rate Sensitivity : We pay interest on various types of debt instruments to our suppliers and lending institutions. The agreements entail either fixed or variable interest rates. Instruments which have fixed rates are mainly leases on radiology equipment. Variable rate interest obligations relate primarily to amounts borrowed under our outstanding credit facilities. Accordingly, our interest expense and consequently, our earnings, are affected by changes in short term interest rates. However due to our purchase of caps, described below, the effects of interest rate changes are limited. We can elect Eurodollar or Base Rate (Prime) interest rate options on amounts outstanding under the First Lien Term Loans. At March 31, 2021, we had $601.3 million outstanding subject to an adjusted Eurodollar election on First Lien Term Loans and our effective 6 month LIBOR rate plus applicable was 4.75%. A hypothetical 1% increase in the adjusted Eurodollar rates under the First Lien Credit Agreement over the current Eurodollar rate would result in an increase of $6.0 million in annual interest expense and a corresponding decrease in income before taxes. At March 31, 2021, we had $6.0 million outstanding subject to an adjusted prime election on First Lien Term Loans and our effective prime rate was 5.75%. A hypothetical 1% increase in the adjusted Prime rates under the First Lien Credit Agreement over the current Prime rate would result in an increase of $0.1 million in annual interest expense and a corresponding decrease in income before taxes. At March 31, 2021, we had $50.3 million outstanding subject to an adjusted Eurodollar election on the SunTrust Restated Credit Agreement. We can elect Eurodollar or Base Rate (Prime) interest rate options on amounts outstanding under the SunTrust Restated Credit Agreement. At March 31, 2021, our effective LIBOR rate plus applicable margin was 2.25%. A hypothetical 1% increase in the adjusted Eurodollar rates under the SunTrust Restated Credit Agreement would result in an increase of approximately $0.5 million in annual interest expense and a corresponding decrease in income before taxes. In the second quarter of 2019, we entered into four forward interest rate agreements ("2019 Swaps"). The 2019 Swaps have total notional amounts of $500,000,000, consisting of two agreements of $50,000,000 each and two agreements of $200,000,000 each. The 2019 Swaps will secure a constant interest rate associated with portions of our variable rate bank debt and have an effective date of October 13, 2020. They will mature in October 2023 for the smaller notional and October 2025 for the larger notional. Under these arrangements, we arranged the 2019 Swaps with locked in 1 month LIBOR rates at 1.96% for the $100,000,000 notional and at 2.05% for the $400,000,000 notional. As of the effective date, we will be liable for premium payments if interest rates decline below arranged rates, but will receive interest payments if rates remain above the arranged rates.