Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. 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 derivative instruments in accordance with policies and procedures approved by the Audit Committee of the Board of Directors. These activities are managed by a senior executive committee responsible for 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, primarily driven by changes in SOFR. To manage this exposure, we utilize interest rate swaps to convert existing and anticipated future floating-rate borrowings under our term credit agreements to fixed rates. As of December 31, 2025, we had $600 million of variable-rate debt outstanding, which was fully hedged by interest rate swaps with an aggregate notional amount of $600 million. Consequently, a hypothetical one-percentage point increase/decrease in interest rates would result in no change to our interest payments or interest expense over a 12-month period. Refer to Note 9 — Derivative Financial Instruments and Hedging Activities for additional information regarding these interest rate swaps.
The fair value of our fixed-rate debt is also subject to interest rate risk. As of December 31, 2025, the estimated fair value of our fixed-rate debt was $406.1 million, compared to a principal amount of $450.0 million. We estimate the fair value of our debt using market interest rates for debt with similar terms and maturities. Generally, the fair value of fixed-rate debt increases as interest rates fall and decreases as interest rates rise. A hypothetical one-percentage point increase/decrease in prevailing interest rates at December 31, 2025, would result in a corresponding decrease/increase in the fair value of our fixed-rate debt of approximately $19 million and $20 million, respectively.
We estimate the periodic effective interest rate on our combined fixed and variable-rate debt to be approximately 2.4%. This estimate accounts for the impact of interest rate swaps and the reduction in cost provided by estimated patronage, and excludes unused commitment fees related to our Revolving Credit Facility.
The following table summarizes our outstanding debt, interest rate swaps, and average interest rates by year of expected maturity and their respective fair values at December 31, 2025:
(Dollars in thousands) 2026 2027 2028 2029 2030 Thereafter Total Fair Value
Variable-rate debt:
Principal amounts $200,000 — $200,000 $200,000 — — $600,000 $600,000
Average interest rate (a)(b) 5.59% — 5.44% 5.76% — — 5.60%
Fixed-rate debt:
Principal amounts — — — — — $450,000 $450,000 $406,080
Average interest rate (b) — — — — — 2.75% 2.75%
Interest rate swaps:
Notional amount $200,000 — $200,000 $200,000 — — $600,000 $26,819
Average pay rate (b) 1.50% — 1.37% 0.67% — — 1.18%
Average receive rate (c) 3.84% — 3.84% 3.84% — — 3.84%
(a) Excludes estimated patronage refunds.
(b) Interest rates as of December 31, 2025.
(c) Average Daily Simple SOFR rate as of December 31, 2025 based on a 30-day look back period.
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