Derivative Instruments (Note) |
9 Months Ended |
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Sep. 30, 2016 | |
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
| Derivative Instruments |
DERIVATIVE INSTRUMENTS
HSNi uses derivatives in the management of its interest rate risk with respect to its variable rate debt. HSNi's strategy is to eliminate the cash flow risk on a portion of its variable rate debt caused by changes in the benchmark interest rate (LIBOR). Derivative instruments are not entered into for speculative purposes.
HSNi uses interest rate swap contracts to eliminate the cash flow risk on a portion of its variable rate debt. HSNi pays at a fixed rate and receives payments at a variable rate based on one-month LIBOR. The swaps effectively fix the floating LIBOR-based interest of our outstanding LIBOR-based debt. The interest rate swaps were designated and qualified as cash flow hedges; therefore, the effective portions of the changes in fair value are recorded in accumulated other comprehensive income (loss). Any ineffective portions of the changes in fair value of the interest rate swaps will be immediately recognized in earnings in the consolidated statements of operations.
The interest rate swaps effectively convert $187.5 million of our variable rate term loan to a fixed-rate of 0.8525% through April 2017, and then increases to $250.0 million in April 2017 with a maturity date in January 2020 with a fixed rate of 1.05% (in both cases the swapped fixed rate is exclusive of the credit spread under the Credit Agreement). Based on HSNi's leverage ratio as of September 30, 2016, the all-in fixed rate was 2.3525%. The changes in fair value of the interest rate swaps (inclusive of reclassifications to net income and net of tax) for the three months ended September 30, 2016 and 2015 were income of approximately $0.9 million and a loss of approximately $0.2 million, respectively, and were included in other comprehensive income (loss). The changes in fair value of the interest rate swap (inclusive of reclassifications to net income and net of tax) for the nine months ended September 30, 2016 and 2015 were losses of approximately $0.6 million and $0.7 million, respectively, and were included in other comprehensive income (loss).
The fair values of the interest rate swaps at September 30, 2016, December 31, 2015 and September 30, 2015 were liabilities of $1.2 million, $0.2 million and $0.9 million, respectively, and were recorded in "Other long-term liabilities" in the consolidated balance sheets. HSNi estimates that approximately $0.6 million of unrealized losses included in accumulated other comprehensive loss related to these swaps will be realized and reported in earnings within the next twelve months. See Note 8 for discussion of the fair value measurements concerning these interest rate swaps.
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