Note 7 - Interest Rate Swaps |
12 Months Ended | ||||||||||||||||||||||||
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Dec. 31, 2025 | |||||||||||||||||||||||||
| Notes to Financial Statements | |||||||||||||||||||||||||
| Derivative Instruments and Hedging Activities Disclosure [Text Block] |
NOTE 7 – INTEREST RATE SWAPS
We assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely affect expected future cash flows and by evaluating hedging opportunities.
We generally use variable-rate debt to finance our operations, capital expenditures and acquisitions. These variable-rate debt obligations expose us to variability in interest payments due to changes in interest rates. The terms of our credit facility with CoBank require that we enter into 35% of our existing debt interest rate agreements designed to protect us against fluctuations in interest rates, in an aggregate principal amount and for a duration determined under the credit facility.
To meet this objective, we had entered into several IRSAs with CoBank, which allowed us to change the variable-rate cash flow exposure of the debt obligations to fixed cash flows. Under the terms of these IRSAs, we pay a fixed contractual interest rate and (i) make an additional payment if the SOFR variable rate payment is below a contractual rate or (ii) receive a payment if the SOFR variable rate payment is above the contractual rate.
We entered into the following IRSA, which effectively locked in more than 35% of our variable-rate debt through July 2026. On July 31, 2025, we entered into a new IRSA with CoBank which replaced our existing three swaps which all expired on July 31, 2025, and covered $43,750,000 of our aggregate indebtedness. As of December 31, 2025, our IRSA covered $43,750,000, with a weighted average interest rate of 7.56%.
Each month, we make interest payments to CoBank under its loan agreements based on the current applicable SOFR plus the contractual SOFR margin then in effect with respect to the loan, without reflecting our IRSAs. At the end of each calendar month, CoBank adjusts our aggregate interest payments based on the difference, if any, between the amounts paid by us during the month and the current effective interest rate. Net interest payments are reported in our consolidated income statement as interest expense.
As of December 31, 2025, we had the following IRSA in effect.
(1) As described in Note 6 – “Long-Term Debt,” the notes above initially bears interest at a SOFR rate determined by the maturity of the note, plus a “ Rate Margin” rate equal to a maximum of 3.75% according to the individual secured credit facility. The SOFR Rate Margin increases as the borrower’s “Leverage Ratio” increases and decreases as our “Leverage Ratio” decreases. The “Current Effective Interest Rate” in the table reflects the rate we pay giving effect to the swaps.
Our IRSA, under our credit facilities, qualifies as a cash flow hedge for accounting purposes under GAAP. We reflect the effect of this hedging transaction in the financial statements. The unrealized gain/loss is reported in other comprehensive income. If we terminate our IRSA, the cumulative change in fair value at the date of termination would be reclassified from accumulated other comprehensive gain (loss), which is classified in stockholders’ equity, into earnings on the consolidated statements of income.
The fair value of the Company’s IRSA was determined based on valuations received from CoBank and were based on the present value of expected future cash flows using discount rates appropriate with the terms of the IRSA. The fair value indicates an estimated amount we would be required to pay if the contracts were canceled or transferred to other parties. As of December 31, 2025, the fair value asset of these swaps was $132,274, which has been recorded net of deferred tax expense of $37,751, resulting in the $94,523 in accumulated other comprehensive income. As of December 31, 2024, the fair value asset of these swaps was $475,960, which has been recorded net of deferred tax expense of $135,839, resulting in the $340,121 in accumulated other comprehensive income. |
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