Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 3. Quantitative and Qualitative Disclosures About Market Risk (dollar amounts in thousands, except per share amounts)
We are exposed to risks associated with market changes in interest rates. We manage our exposure to this market risk by monitoring available financing alternatives. Our strategy to manage exposure to changes in interest rates has not materially changed since December 31, 2019. Other than as described below, we do not currently foresee any significant changes in our exposure to fluctuations in interest rates or in how we manage this exposure in the near future.
Fixed Rate Debt
At September 30, 2020, our outstanding publicly tradable debt consisted of 13 issues of fixed rate, senior notes:
Principal Balance Annual Interest Rate Annual Interest Expense Maturity Interest Payments Due
$ 50,000 4.250 % $ 2,125 2021 Semi-Annually
500,000 5.000 % 25,000 2022 Semi-Annually
500,000 4.500 % 22,500 2023 Semi-Annually
350,000 4.650 % 16,275 2024 Semi-Annually
825,000 4.350 % 35,888 2024 Semi-Annually
350,000 4.500 % 15,750 2025 Semi-Annually
800,000 7.500 % 60,000 2025 Semi-Annually
350,000 5.250 % 18,375 2026 Semi-Annually
450,000 4.750 % 21,375 2026 Semi-Annually
400,000 4.950 % 19,800 2027 Semi-Annually
400,000 3.950 % 15,800 2028 Semi-Annually
425,000 4.950 % 21,038 2029 Semi-Annually
400,000 4.375 % 17,500 2030 Semi-Annually
$ 5,800,000 $ 291,426
No principal repayments are due under these notes until maturity. Because these notes require interest at fixed rates, changes in market interest rates during the term of these debts will not affect our interest obligations. If these notes were refinanced at interest rates which are one percentage point higher than the rates shown above, our per annum interest cost would increase by approximately $58,000. Changes in market interest rates would affect the fair value of our fixed rate debt obligations; increases in market interest rates decrease the fair value of our fixed rate debt while decreases in market interest rates increase the fair value of our fixed rate debt. Based on the balances outstanding at September 30, 2020 and discounted cash flows analyses through the respective maturity dates, and assuming no other changes in factors that may affect the fair value of our fixed rate debt obligations, a hypothetical immediate one percentage point change in interest rates would change the fair value of those debt obligations by approximately $252,822.
Each of these fixed rate unsecured debt arrangements allows us to make repayments earlier than the stated maturity date. We are generally allowed to make prepayments only at a premium equal to a make whole amount, as defined, which is generally designed to preserve a stated yield to the noteholder. Also, we have in the past repurchased and retired some of our outstanding debts and we may do so again in the future. These prepayment rights and our ability to repurchase and retire outstanding debt may afford us opportunities to mitigate the risks of refinancing our debts at their maturities at higher rates by refinancing prior to maturity.
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Floating Rate Debt
At September 30, 2020, our floating rate debt consisted of $80,086 outstanding under our $1,000,000 revolving credit facility and our $400,000 term loan. The maturity date of our revolving credit facility is July 15, 2022, and subject to our meeting certain conditions, including our payment of an extension fee, we have an option to extend the stated maturity date of the facility for two additional six-month periods. No principal repayments are required under our revolving credit facility prior to maturity, and repayments may be made and redrawn subject to conditions at any time without penalty. As of September 30, 2020, no principal prepayments are required under our term loan prior to maturity and we can repay principal amounts outstanding under the term loan subject to conditions at any time without penalty, but after amounts outstanding under our term loan are repaid, amounts may not be redrawn. Borrowings under our revolving credit facility and term loan are in U.S. dollars and require annual interest to be paid at the rate of LIBOR plus premiums that are subject to adjustment based upon changes to our credit ratings. Accordingly, we are vulnerable to changes in U.S. dollar based short term interest rates, specifically LIBOR, and to changes in our credit ratings. In addition, upon renewal or refinancing of our revolving credit facility or our term loan, we are vulnerable to increases in interest rate premiums due to market conditions or our perceived credit characteristics. Generally, a change in interest rates would not affect the value of this floating rate debt but would affect our operating results. The maturity date of our term loan was July 15, 2023; however, we repaid the term loan on November 5, 2020.
The following table presents the impact a one percentage point increase in interest rates would have on our annual floating rate interest expense as of September 30, 2020:
Impact of Increase in Interest Rates
Interest Rate
Per Year (1)
Outstanding
Debt Total Interest
Expense Per Year Annual Per
Share Impact (2)
At September 30, 2020 2.72 % $ 480,086 $ 13,058 $ 0.08
One percentage point increase 3.72 % $ 480,086 $ 17,859 $ 0.11
(1) Weighted average based on the interest rates and the respective outstanding borrowings as of September 30, 2020.
(2) Based on diluted weighted average common shares outstanding for the nine months ended September 30, 2020.
The following table presents the impact a one percentage point increase in interest rates would have on our annual floating rate interest expense at September 30, 2020 if we were fully drawn on our revolving credit facility and our $400,000 term loan remained outstanding:
Impact of Increase in Interest Rates
Interest Rate
Per Year (1)
Outstanding
Debt Total Interest
Expense Per Year Annual Per
Share Impact (2)
At September 30, 2020 2.61 % $ 1,400,000 $ 36,540 $ 0.22
One percentage point increase 3.61 % $ 1,400,000 $ 50,540 $ 0.31
(1) Weighted average based on the interest rates and the respective outstanding borrowings (assuming fully drawn) as of September 30, 2020.
(2) Based on diluted weighted average common shares outstanding for the nine months ended September 30, 2020.
The foregoing tables show the impact of an immediate increase in floating interest rates as of September 30, 2020. If interest rates were to increase gradually over time, the impact would be spread over time. Our exposure to fluctuations in floating interest rates will increase or decrease in the future with increases or decreases in the outstanding amounts under our revolving credit facility or other floating rate debt, if any. Although we have no present plans to do so, we may in the future enter into hedge arrangements from time to time to mitigate our exposure to changes in interest rates.
LIBOR Phase Out
LIBOR is currently expected to be phased out in 2021. We are required to pay interest on borrowings under our credit facility at floating rates based on LIBOR. Future debt that we may incur may also require that we pay interest based upon LIBOR. We currently expect that the determination of interest under our credit agreement would be revised as provided under the agreement or amended as necessary to provide for an interest rate that approximates the existing interest rate as calculated in accordance with LIBOR for similar types of loans. Despite our current expectations, we cannot be sure that, if LIBOR is phased out or transitioned, the changes to the determination of interest under our agreements would approximate the current calculation in accordance with LIBOR. We do not know what standard, if any, will replace LIBOR if it is phased out or transitioned.
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