RAYONIER INC 10-Q

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to various market risks, including changes in interest rates, commodity prices and foreign exchange rates. Our objective is to minimize the economic impact of these market risks. We use derivatives in accordance with policies and procedures approved by the Audit Committee of the Board of Directors. Derivatives are managed by a senior executive committee whose responsibilities include initiating, managing and monitoring resulting exposures. We do not enter into financial instruments for trading or speculative purposes. Interest Rate Risk Due to the upcoming discontinuation of LIBOR on June 30, 2023, we amended our outstanding variable rate debt agreements and active interest rate swaps to change the interest rate benchmark from LIBOR to Daily Simple SOFR in December 2022. In March 2023, we modified our benchmark rates from LIBOR to Daily Simple SOFR for our forward-starting interest rates swaps. We are exposed to interest rate risk through our variable rate debt, primarily due to changes in SOFR. However, we use interest rate swaps to manage our exposure to interest rate movements on our term credit agreements by swapping existing and anticipated future borrowings from floating rates to fixed rates. As of March 31, 2023, we had $1 billion of U.S. long-term variable rate debt outstanding on our term credit agreements. The notional amount of outstanding interest rate swap contracts with respect to our term credit agreements at March 31, 2023 was $850 million. The $350 million 2015 Term Loan Facility matures in April 2028, with the associated interest rate swaps maturing in August 2024. We have entered into forward starting interest rate swaps to cover $150 million of the 2015 Term Loan Facility through the extended maturity date. The 2016 Incremental Term Loan Facility and associated interest rate swaps mature in May 2026, and the 2021 Incremental Term Loan Facility and associated interest rate swaps mature in June 2029. We have entered into an interest rate swap agreement to cover $100 million of borrowings under the 2022 Incremental Term Loan Facility through the maturity date in December 2027. At this borrowing level, a hypothetical one-percentage point increase/decrease in interest rates would result in a corresponding increase/decrease in interest payments and expense of approximately $1.5 million over a 12-month period. The fair market value of our fixed interest rate debt is also subject to interest rate risk. The estimated fair value of our fixed rate debt at March 31, 2023 was $441.2 million compared to the $522.2 million principal amount. We use interest rates of debt with similar terms and maturities to estimate the fair value of our debt. Generally, the fair market value of fixed-rate debt will increase as interest rates fall and decrease as interest rates rise. A hypothetical one-percentage point increase/decrease in prevailing interest rates at March 31, 2023 would result in a corresponding decrease/increase in the fair value of our fixed rate debt of approximately $27 million and $29 million, respectively. We estimate the periodic effective interest rate on our long-term fixed and variable rate debt to be approximately 3.1% after consideration of interest rate swaps and estimated patronage refunds, excluding unused commitment fees on the revolving credit facility. 51 The following table summarizes our outstanding debt, interest rate swaps and average interest rates, by year of expected maturity and their fair values at March 31, 2023: (Dollars in thousands) 2023 2024 2025 2026 2027 Thereafter Total Fair Value Variable rate debt: Principal amounts — — — $200,000 $250,000 $550,000 $1,000,000 $1,000,000 Average interest rate (a)(b) — — — 6.39 % 6.34 % 6.32 % 6.34 % Fixed rate debt: Principal amounts — — $21,669 $25,280 $25,280 $450,000 $522,229 $441,247 Average interest rate (b) — — 2.95 % 3.64 % 6.48 % 2.75 % 2.98 % Interest rate swaps: Notional amount — $350,000 — $200,000 $100,000 $200,000 $850,000 $48,976 Average pay rate (b) — 2.18 % — 1.50 % 3.72 % 0.67 % 1.85 % Average receive rate (b) — 4.64 % — 4.64 % 4.64 % 4.64 % 4.64 % Forward-starting interest rate swaps Notional amount — — — — — $150,000 $150,000 $10,456 Average pay rate (b) — — — — — 0.73 % 0.73 % Average receive rate (b) — — — — — 4.64 % 4.64 % (a) Excludes estimated patronage refunds. (b) Interest rates as of March 31, 2023. Foreign Currency Exchange Rate Risk The New Zealand subsidiary’s export sales are predominately denominated in U.S. dollars, and therefore its cash flows are affected by fluctuations in the exchange rate between the New Zealand dollar and the U.S. dollar. This exposure is partially managed by a natural currency hedge, as ocean freight payments and shareholder distributions are also paid in U.S. dollars. We manage any excess foreign exchange exposure through the use of derivative financial instruments. Foreign Exchange Exposure At March 31, 2023, the New Zealand subsidiary had foreign currency exchange contracts with a notional amount of $128.8 million and foreign currency option contracts with a notional amount of $78.0 million outstanding related to foreign export sales. The amount hedged represents a portion of forecasted U.S. dollar denominated export timber and log trading sales proceeds over the next 36 months and next 2 months, respectively. The following table summarizes our outstanding foreign currency exchange rate risk contracts at March 31, 2023: (Dollars in thousands) 0-1 months 1-2 months 2-3 months 3-6 months 6-12 months 12-18 months 18-24 months 24-36 months Total Fair Value Foreign exchange contracts to sell U.S. dollar for New Zealand dollar Notional amount $10,000 $8,750 $7,000 $20,500 $29,000 $27,000 $7,500 $19,000 $128,750 ($3,153) Average contract rate 1.4970 1.4827 1.4950 1.4977 1.5265 1.6140 1.7239 1.6505 1.5631 Foreign currency option contracts to sell U.S. dollar for New Zealand dollar Notional amount — — $2,000 $6,000 $12,000 $8,000 $24,000 $26,000 $78,000 $298 Average strike price — — 1.4744 1.4829 1.5368 1.6383 1.6446 1.7173 1.6348 52