INTEREST RATE SWAP AGREEMENTS
 12 Months Ended
Dec. 31, 2013
INTEREST RATE SWAP AGREEMENTS  
INTEREST RATE SWAP AGREEMENTS
11 - INTEREST RATE SWAP AGREEMENTS

As of December 31, 2013 and 2012, the Company had four and five interest rate swap agreements outstanding, respectively, with DnB Bank ASA to manage interest costs and the risk associated with changing interest rates related to the Company’s 2007 Credit Facility.  The total notional principal amount of the swaps at December 31, 2013 and 2012 is $306,233 and $356,233, respectively, and the swaps have specified rates and durations.

The following table summarizes the interest rate swaps designated as cash flow hedges that were in place as of December 31, 2013 and 2012:

Interest Rate Swap Detail
 
December 31,
2013
  
December 31,
2012
 
Trade
Date
 
Fixed
Rate
 
Start Date
of Swap
End date
of Swap
 
Notional
Amount
Outstanding
  
Notional
Amount
Outstanding
 
9/6/05
  
4.485
%
9/14/05
7/29/15
 
$
106,233
  
$
106,233
 
3/29/06
  
5.25
%
1/2/07
1/1/14
  
50,000
   
50,000
 
3/24/06
  
5.075
%
1/2/08
1/2/13
  
—
   
50,000
 
1/9/09
 
  
2.05
%
1/22/09
1/22/14
  
100,000
   
100,000
 
2/11/09
 
  
2.45
%
2/23/09
2/23/14
  
50,000
   
50,000
 
 
 
     
 
 
 
        
 
 
     
 
 
     
 
$
306,233
  
$
356,233
 

The differentials to be paid or received for these swap agreements are recognized as an adjustment to interest expense as incurred.  The Company is currently utilizing cash flow hedge accounting for these swaps whereby the effective portion of the change in value of the swaps is reflected as a component of AOCI.  The ineffective portion is recognized as other expense, which is a component of other (expense) income.

The interest expense pertaining to the interest rate swaps for the years ended December 31, 2013, 2012 and 2011 was $9,963, $13,440 and $28,854, respectively.

The swap agreements, with effective dates prior to December 31, 2013, synthetically convert variable rate debt to fixed rate debt at the fixed interest rate of the swap plus the Applicable Margin, as defined in the “2007 Credit Facility” section above in Note 9 — Debt.

The following table summarizes the derivative asset and liability balances at December 31, 2013 and 2012:

 
Asset Derivatives
 
Liability Derivatives
 
 
Balance
 
Fair Value
 
Balance
 
Fair Value
 
 
Sheet
Location
 
December 31,
2013
  
December 31,
2012
 
Sheet
Location
 
December 31,
2013
  
December 31,
2012
 
Derivatives designated as hedging instruments
 
 
  
 
 
 
  
 
Interest rate contracts
Fair value of derivative instruments (Current Assets)
 
$
—
  
$
—
 
Fair value of derivative instruments (Current Liabilities)
 
$
6,975
  
$
7
 
Interest rate contracts
Fair value of derivative instruments (Noncurrent Assets)
  
—
   
—
 
Fair value of derivative instruments (Noncurrent Liabilities)
  
—
   
16,045
 
 
 
        
 
        
Total derivatives designated as hedging instruments
 
 
$
—
  
$
—
 
 
 
$
6,975
  
$
16,052
 
 
 
        
 
        
Total Derivatives
 
 
$
—
  
$
—
 
 
 
$
6,975
  
$
16,052
 
 
Refer to Note 1 – General Information for additional information regarding potential defaults relating to the swap.  As such, in accordance with applicable accounting guidance, the Company has classified the liability related to this interest rate swap as a current liability in its consolidated balance sheet as of December 31, 2013. The Company is currently in default under the covenants of its 2007 Credit Facility due to the default on a scheduled debt amortization payment due on March 31, 2014.  The default under the 2007 Credit Facility requires the Company to elect interest periods of only one-month, therefore the Company may no longer be able to qualify for hedge accounting in the future.
 
The following tables present the impact of derivative instruments and their location within the Consolidated Statement of Operations:

The Effect of Derivative Instruments on the Consolidated Statement of Operations
For the Year Ended December 31, 2013
 
Derivatives in Cash Flow Hedging
Amount of
Gain (Loss)
Recognized
in AOCI on
Derivative
(Effective
Portion)
Location of
Gain (Loss)
Reclassified
from AOCI
into income
(Effective
Amount of
Gain (Loss)
Reclassified
from AOCI
into income
(Effective
Portion)
Location of
Gain (Loss)
Recognized in
Income on
Derivative
(Ineffective
Amount of
Gain (Loss)
Recognized in
Income on
Derivative
(Ineffective
Portion)
Relationships
2013
Portion)
2013
Portion)
2013
Interest rate contracts
 
$
(882
)
Interest Expense
 
 
$
(9,963
)
Other Income (Expense)
 
 
$
(4
)

The Effect of Derivative Instruments on the Consolidated Statement of Operations
For the Year Ended December 31, 2012

Derivatives in Cash Flow Hedging
 
Amount of
Gain (Loss)
Recognized
in AOCI on
Derivative
(Effective
Portion)
 
Location of
Gain (Loss)
Reclassified
from AOCI
into income
(Effective
 
 
Amount of
Gain (Loss)
Reclassified
from AOCI
into income
(Effective
Portion)
 
Location of
Gain (Loss)
Recognized in
Income on
Derivative
(Ineffective
 
 
Amount of
Gain (Loss)
Recognized in
Income on
Derivative
(Ineffective
Portion)
 
Relationships
 
2012
 
Portion)
 
 
2012
 
Portion)
 
2012
 
Interest rate contracts
 
$
(4,252
)
Interest Expense
 
 
$
(13,440
)
Other Income (Expense)
 
 
$
100
 

The Effect of Derivative Instruments on the Consolidated Statement of Operations
For the Year Ended December 31, 2011

Derivatives in Cash Flow Hedging
 
Amount of
Gain (Loss)
Recognized
in AOCI on
Derivative
(Effective
Portion)
 
Location of
Gain (Loss)
Reclassified
from AOCI
into income
(Effective
 
 
Amount of
Gain (Loss)
Reclassified
from AOCI
into income
(Effective
Portion)
 
Location of
Gain (Loss)
Recognized in
Income on
Derivative
(Ineffective
 
 
Amount of
Gain (Loss)
Recognized in
Income on
Derivative
(Ineffective
Portion)
 
Relationships
 
2011
 
Portion)
 
2011
 
Portion)
 
 
2011
 
Interest rate contracts
 
$
(10,947
)
Interest Expense
 
 
$
(28,854
)
Other Income (Expense)
 
 
$
51
 

Amounts recorded in AOCI for interest rate swaps are reclassified into interest expense when the underlying hedged interest payments are accrued.  At December 31, 2013, ($4,652) of AOCI is expected to be reclassified into interest expense over the next 12 months associated with interest rate derivatives.

The Company is required to provide collateral in the form of vessel assets to support the interest rate swap agreements, excluding vessel assets of Baltic Trading.  At December 31, 2013, the Company’s 35 vessels mortgaged under the 2007 Credit Facility served as collateral in the aggregate amount of $100,000.