DERIVATIVE FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTSOur net income, or loss, and cash flows are subject to fluctuations resulting from changes in interest rates on our variable rate debt obligations and from changes in foreign currency exchange rates, particularly with respect to the U.S. dollar and the Canadian dollar. We use interest rate derivative instruments, specifically swaps, on our

variable rate debt and to manage the risks associated with market fluctuations in interest rates to reduce volatility in our cash flows. We have not historically designated, nor do we expect to designate, our derivative financial instruments as hedges of the underlying risk exposure. All of our financial instruments are employed in connection with an underlying asset, liability and/or forecasted transaction and are not entered into for speculative purposes.

Interest Rate Derivatives

In October 2022, we terminated and settled our existing interest rate swap and simultaneously entered into a new interest rate swap. The new interest rate swap is a five-year contract with a $175.0 million notional value that fixes SOFR to 3.956% for the notional value of the swap agreement instead of the variable rate that we pay under our Credit Agreement. The swap settles monthly through the termination date in October 2027.

Subsequent to September 30, 2023, we settled the interest rate swap discussed above for cash proceeds. Refer to Note 19. Su b sequent Events for more information.

Derivative Positions

We record all of our derivative financial instruments at their fair values in the line items specified below within our consolidated balance sheets, the amounts of which were as follows at the dates indicated:


	September 30, 2023		December 31, 2022
	(in thousands)
Other current assets	$	2,530	$	1,448
Other non-current assets	275		—

Other non-current liabilities	—		(3,587)
	$	2,805	$	(2,139)

We have not designated our derivative financial instruments as hedges of our interest rate exposure. As a result, changes in the fair value of these derivatives are recorded as “Gain associated with derivative instruments” in our consolidated statements of operations. The gains or losses associated with changes in the fair value of our derivative contracts do not affect our cash flows until the underlying contract is settled by making or receiving a payment to or from the counterparty. In connection with our derivative activities, we recognized the following amounts during the periods presented:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(in thousands)
Gain associated with derivative instruments	$	(3,187)	$	(6,904)	$	(6,092)	$	(13,800)

We determine the fair value of our derivative financial instruments using third party pricing information that is derived from observable market inputs, which we classify as level 2 with respect to the fair value hierarchy.

The following table presents summarized information about the fair values of our outstanding interest rate contracts for the periods indicated:


					September 30, 2023		December 31, 2022
	Notional		Interest Rate Parameters		Fair Value		Fair Value
					(in thousands)
Swap Agreements
Swap maturing October 2027	$	175,000,000	3.956	%	$	2,805	$	(2,139)

USD Partners LP 10-Q