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As of December 31, 2022, we had $200.0 million of borrowings outstanding under our Amended Facility, none of which were subject to interest rate caps.
−Removed: See “Note 8 - Derivative Financial Instruments” in our notes to consolidated financial statements for more information regarding our prior interest rate cap.
−Removed: Amounts borrowed under our Amended Facility bear interest at a variable rate based on LIBOR plus an applicable LIBOR margin.
+Added: Amounts borrowed under our Amended Facility bear interest at a variable rate based on SOFR plus an applicable SOFR margin.
The weighted average interest rate on borrowings outstanding under our Amended Facility was 5.5% as of December 31, 2022.
−Removed: If the LIBOR rate were to fluctuate by 0.25%, interest expense would increase or decrease, depending on rate movement, future earnings and cash flows by approximately $0.3 million annually on the total of the outstanding balances on our Amended Facility as of December 31, 2021.
−Removed: In July 2017, the Financial Conduct Authority announced it intended to stop compelling banks to submit rates for the calculation of LIBOR after 2021.
−Removed: In March 2021, the ICE Benchmark Administration, the administrator of LIBOR, announced its intention to cease publication of certain LIBOR settings after 2021, while continuing to publish overnight and one-, three-, six-, and twelve-month U.S.
−Removed: dollar LIBOR rates through June 30, 2023.
−Removed: While this announcement extended the transition period to June 2023, the United States Federal Reserve Board and other regulatory bodies concurrently issued guidance encouraging banks and other financial market participants to cease entering into new contracts that use U.S.
−Removed: dollar LIBOR as a reference rate as soon as practicable and in any event no later than December 31, 2021.
−Removed: In the U.S., the Alternative Reference Rates Committee (“ARRC”), which was convened by the Federal Reserve Board and the Federal Reserve Bank of New York, has recommended that the Secured Overnight Financing Rate (“SOFR”) plus a recommended spread adjustment as its preferred alternative to USD-LIBOR.
−Removed: There are significant differences between LIBOR and SOFR, such as LIBOR being an unsecured lending rate while SOFR is a secured rate, and SOFR is an overnight rate while LIBOR reflects term rates at different maturities.
+Added: If the SOFR rate were to fluctuate by 0.25%, interest expense would increase or decrease, depending on rate movement, future earnings and cash flows by approximately $0.5 million annually on the total of the outstanding balances on our Amended Facility as of December 31, 2022.
We expect that all LIBOR settings relevant to us will cease to be published or will no longer be representative after June 30, 2023.
−Removed: As a result, any of our LIBOR-based borrowings that extend beyond such date will need to be converted to a replacement rate.
−Removed: Certain risks may arise in connection with transitioning contracts to SOFR or any other alternative variable rate, including any resulting value transfer that may occur.
−Removed: The value of loans, securities, or derivative instruments tied to LIBOR could also be impacted.
−Removed: The Amended Facility, which we entered into in August 2021, provides for the replacement of LIBOR if it becomes unavailable during the term of the facility.
−Removed: However, for some instruments, the method of transitioning to an alternative rate may be challenging, as they may require substantial negotiation with each respective counterparty.
−Removed: If a contract is not transitioned to an alternative variable rate and LIBOR is discontinued, the impact is likely to vary by contract.
−Removed: The discontinuation of LIBOR will not affect our ability to borrow or maintain already outstanding borrowings or swaps, but if our contracts indexed to LIBOR, including certain contracts governing our variable rate debt and our interest rate swaps, are converted to SOFR, the differences between LIBOR and SOFR, plus the recommended spread adjustment, could result in interest costs that are higher than if LIBOR remained available.
−Removed: Additionally, although SOFR is the ARRC’s recommended replacement rate, it is also possible that lenders may instead choose alternative replacement rates that may differ from LIBOR in ways similar to SOFR or in ways that would result in higher interest costs for us.
+Added: The discontinuation of LIBOR will not affect our ability to borrow or maintain already outstanding borrowings or hedging transactions, but as our contracts indexed to LIBOR are converted to SOFR, the differences between LIBOR and SOFR, plus the recommended spread adjustment, could result in interest or hedging costs that are higher than if LIBOR remained available.
+Added: Additionally, although SOFR is the recommended replacement rate, it is also possible that lenders may instead choose alternative replacement rates that may differ from LIBOR in ways similar to SOFR or in ways that would result in higher interest or hedging costs for us.
It is not yet possible to predict the magnitude of LIBOR’s end on our borrowing costs given the remaining uncertainty about which rates will replace LIBOR.
+Added: As of December 31, 2022, each of the agreements governing our variable rate debt either have been transitioned to SOFR or provide for the replacement of LIBOR if it becomes unavailable during the term of such agreement.
Financial Statements And Supplementary Data.
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.