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 We are exposed to interest rate risk through our variable rate debt 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, 2024, we had $850 million 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, 2024 was also $850 million. The $350 million 2015 Term Loan Agreement 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 $200 million of the 2015 Term Loan Agreement through the extended maturity date. The 2016 Incremental Term Loan Agreement and associated interest rate swaps mature in May 2026, and the 2021 Incremental Term Loan Agreement 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 Agreement through the maturity date in December 2027. At this current borrowing and derivatives level, a hypothetical one-percentage point increase/decrease in interest rates would result in no corresponding increase/decrease in interest payments and expense 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, 2024 was $449.4 million compared to the $518.7 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, 2024 would result in a corresponding decrease/increase in the fair value of our fixed rate debt of approximately $24 million and $26 million, respectively. We estimate the periodic effective interest rate on our U.S. long-term fixed and variable rate debt to be approximately 2.7% after consideration of interest rate swaps and estimated patronage and excluding unused commitment fees on the revolving credit facility. 53 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, 2024: (Dollars in thousands) 2024 2025 2026 2027 2028 Thereafter Total Fair Value Variable rate debt: Principal amounts — — $200,000 $100,000 $350,000 $200,000 $850,000 $850,000 Average interest rate (a)(b) — — 7.06 % 7.01 % 7.01 % 6.96 % 7.01 % Fixed rate debt: Principal amounts — $20,605 $24,040 $24,040 — $450,000 $518,685 $449,434 Average interest rate (b) — 2.95 % 3.64 % 6.48 % — 2.75 % 2.97 % Interest rate swaps: Notional amount $350,000 — $200,000 $100,000 — $200,000 $850,000 $46,586 Average pay rate (b) 2.18 % — 1.50 % 3.72 % — 0.67 % 1.85 % Average receive rate (c) 5.31 % — 5.31 % 5.31 % — 5.31 % 5.31 % Forward-starting interest rate swaps Notional amount — — — — $200,000 — $200,000 $16,959 Average pay rate (b) — — — — 1.37 % — 1.37 % Average receive rate (c) — — — — 5.31 % — 5.31 % (a) Excludes estimated patronage refunds. (b) Interest rates as of March 31, 2024. (c) Average daily SOFR rate as of March 31, 2024 based on a 30-day look back period. 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, 2024, the New Zealand subsidiary had foreign currency exchange contracts with a notional amount of $127 million and foreign currency option contracts with a notional amount of $106 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, 2024: (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 $8,750 $9,200 $6,000 $16,000 $18,500 $22,000 $17,000 $30,000 $127,450 ($2,116) Average contract rate 1.5982 1.6148 1.6087 1.6135 1.6740 1.6533 1.6352 1.6681 1.6437 Foreign currency option contracts to sell U.S. dollar for New Zealand dollar Notional amount — — — $8,000 $24,000 $28,000 $10,000 $36,000 $106,000 ($59) Average strike price — — — 1.6383 1.6446 1.7105 1.6880 1.6693 1.6740 54