Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, including changes in interest rates and commodity prices. 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 September 30, 2025, we had $600 million of U.S. 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 September 30, 2025 was also $600 million. Refer to Note 8 — Derivative Financial Instruments and Hedging Activities for additional information regarding these interest rate swaps. 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 September 30, 2025 was $404.1 million compared to the $450.0 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 September 30, 2025 would result in a corresponding decrease/increase in the fair value of our fixed rate debt of approximately $20 million and $21 million, respectively.
We estimate the periodic effective interest rate on our fixed and variable rate debt to be approximately 2.4% after consideration of interest rate swaps and estimated patronage and excluding unused commitment fees on the Revolving Credit Facility.
The following table summarizes our outstanding debt, interest rate swaps and average interest rates, by year of expected maturity and their fair values at September 30, 2025:
(Dollars in thousands) 2025 2026 2027 2028 2029 Thereafter Total Fair Value
Variable rate debt:
Principal amounts — $200,000 — $200,000 $200,000 — $600,000 $600,000
Average interest rate (a)(b) — 6.09 % — 5.94 % 6.26 % — 6.10 %
Fixed rate debt:
Principal amounts — — — — — $450,000 $450,000 $404,100
Average interest rate (b) — — — — — 2.75 % 2.75 %
Interest rate swaps:
Notional amount — $200,000 — $200,000 $200,000 — $600,000 $30,182
Average pay rate (b) — 1.50 % — 1.37 % 0.67 % — 1.18 %
Average receive rate (c) — 4.34 % — 4.34 % 4.34 % — 4.34 %
(a) Excludes estimated patronage refunds.
(b) Interest rates as of September 30, 2025.
(c) Average Daily Simple SOFR rate as of September 30, 2025 based on a 30-day look back period.
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