LHC GROUP, INC. CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain statements, including the anticipated timing of the consummation of the Merger, the potential future impact of COVID-19 on our results of operations and liquidity, the potential impact of actions we have taken to mitigate the impact of COVID-19, the potential impact on supply chain disruptions and increased costs associated with obtaining personal protective equipment, the expected benefit of the CARES Act on our liquidity, and information that may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements relate to future plans and strategies, anticipated events or trends, future financial performance, and expectations and beliefs concerning matters that are not historical facts or that necessarily depend upon future events. The words "may," "should," "could," "would," "expect," "plan," "intend," "anticipate," "believe," "estimate," "project," "predict," "potential," and similar expressions are intended to identify forward-looking statements. Specifically, this report contains, among others, forward-looking statements about: •the anticipated timing of the consummation of the Merger and our ability to satisfy the closing condition to the Merger, including receipt of the required regulatory approvals thereto;
•our expectations regarding financial condition or results of operations for
periods after
•our critical accounting policies;
•our business strategies and our ability to grow our business;
•our participation in the Medicare and Medicaid programs;
•the reimbursement levels of Medicare and other third-party payors, including changes in reimbursement resulting from regulatory changes;
•the prompt receipt of payments from Medicare and other third-party payors;
•our future sources of and needs for liquidity and capital resources;
•the effect of any regulatory changes or anticipated regulatory changes;
•the effect of any changes in market rates on our operations and cash flows;
•our ability to obtain financing;
•our ability to make payments as they become due;
•the outcomes of various routine and non-routine governmental reviews, audits and investigations;
•our expansion strategy, the successful integration of recent acquisitions and, if necessary, the ability to relocate or restructure our current facilities;
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•the value of our proprietary technology;
•the impact of legal proceedings;
•our insurance coverage;
•our competitors and our competitive advantages;
•our ability to attract and retain valuable employees;
•the price of our stock;
•our compliance with environmental, health and safety laws and regulations;
•our compliance with health care laws and regulations;
•our compliance with
•the impact of federal and state government regulation on our business; and
•the impact of changes in future interpretations of fraud, anti-kickback, or other laws.
The forward-looking statements included in this report reflect our current views about future events, are based on assumptions, and are subject to known and unknown risks and uncertainties. Many important factors could cause actual results or achievements to differ materially from any future results or achievements expressed in or implied by our forward-looking statements. Many of the factors that will determine future events or achievements are beyond our ability to control or predict. Important factors that could cause actual results or achievements to differ materially from the results or achievements reflected in our forward-looking statements include, among other things, the factors discussed in the Part II, Item 1A. "Risk Factors," included in this report and in our other filings with theSEC , including our 2021 Form 10-K, as updated by our subsequent filings with theSEC . This report should be read in conjunction with the 2021 Form 10-K and Form 10-K Amendment, and all of our other filings made with theSEC through the date of this report, including quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements contained in this report reflect our views and assumptions only as of the date this report is filed with theSEC . Except as required by law, we assume no responsibility for updating any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You should read this report, the information incorporated by reference into this report, and the documents filed as exhibits to this report completely and with the understanding that our actual future results or achievements may differ materially from what we expect or anticipate.
Unless the context otherwise requires, "we," "us," "our," and the "Company"
refer to
OVERVIEW
General
We provide quality, cost-effective post-acute health care services to our patients. As ofSeptember 30, 2022 , we have 942 service providers in 37 states within the continentalUnited States and theDistrict of Columbia . Our services are classified into five segments: (1) home health services, (2) hospice services, (3) home and community-based services, (4) facility-based services primarily offered through our long-term acute care hospitals ("LTACHs"), and (5) healthcare innovations services ("HCI"). We intend to increase the number of service providers within each of our segments that we operate through continued acquisitions, joint ventures, and organic development. Our home health service locations offer a wide range of services, including skilled nursing, medically-oriented social services, and physical, occupational, and speech therapy. As ofSeptember 30, 2022 , we operated 543 home health services locations, of which 333 are wholly-owned, 206 are majority-owned through equity joint ventures, two are under license lease arrangements, and the operations of the remaining two locations are only managed by us. 26
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Our hospices provide end-of-life care to patients with terminal illnesses through interdisciplinary teams of physicians, nurses, home health aides, counselors, and volunteers. We offer a wide range of services, including pain and symptom management, emotional and spiritual support, inpatient and respite care, homemaker services, and counseling. As ofSeptember 30, 2022 , we operated 163 hospice locations, of which 97 are wholly-owned, 64 are majority-owned through equity joint ventures, and two are under license lease arrangements. Through our home and community-based services segment, services are performed by skilled nursing and paraprofessional personnel, and include assistance with activities of daily living to the elderly, chronically ill, and disabled patients. As ofSeptember 30, 2022 , we operated 133 home and community-based services locations, of which 120 are wholly-owned and 13 are majority-owned through equity joint ventures. We provide facility-based services principally through our LTACHs. As ofSeptember 30, 2022 , we operated 11 LTACHs with 12 locations, all but three of which are located within host hospitals. We also operate two skilled nursing facilities, two family health centers, two rural health clinics, and 76 therapy clinics. Of these 94 facility-based services locations, 83 are wholly-owned, and 11 are majority-owned through equity joint ventures. Our HCI segment reports on our developmental activities outside its other business segments. The HCI segment includes (a)Imperium Health Management, LLC , an ACO enablement company, (b)Long Term Solutions, Inc. , an in-home assessment company serving the long-term care insurance industry, and (c) certain assets operated by Advanced Care House Calls, which provides primary medical care for patients with chronic and acute illnesses who have difficulty traveling to a doctor's office. These activities are intended ultimately, whether directly or indirectly, to benefit our patients and/or payors through the enhanced provision of services in our other segments. The activities all share a common goal of improving patient experiences and quality outcomes, while lowering costs. They include, but are not limited to, items such as: technology, information, population health management, risk-sharing, care-coordination and transitions, clinical advancements, enhanced patient engagement and informed clinical decision and technology enabled in-home clinical assessments. We have 9 HCI locations, of which all are wholly-owned.The Joint Commission is a nationwide commission that establishes standards relating to the physical plant, administration, quality of patient care, and operation of medical staffs of health care organizations. Currently, Joint Commission accreditation of home nursing and hospice agencies is voluntary. However, some managed care organizations use Joint Commission accreditation as a credentialing standard for regional and state contracts. As ofSeptember 30, 2022 , the Joint Commission had accredited 521 of our 543 home health services locations and 110 of our 163 hospice agencies. Those not yet accredited are working towards achieving this accreditation. As we acquire companies, we apply for accreditation 12 to 18 months after completing the acquisition. The percentage of net service revenue contributed from each reporting segment for the three and nine months endedSeptember 30, 2022 and 2021 was as follows: Three months ended September 30, Nine months ended September 30, Reporting segment 2022 2021 2022 2021 Home health services 64.7 % 68.4 % 66.9 % 70.7 % Hospice services 18.0 14.6 17.9 12.8 Home and community-based services 8.3 8.1 7.9 8.8 Facility-based services 5.5 5.7 5.5 5.9 HCI 3.5 3.2 1.8 1.8 100.0 % 100.0 % 100.0 % 100.0 % Recent Developments
Coronavirus and Coronavirus Aid, Relief, and Economic Security Act
The following portions of the CARES Act impacted us during the nine months ended
•CAAP: CMS recouped
•Suspension of the 2% sequestration payment adjustment: During the nine months endedSeptember 30, 2022 , we recognized$10.0 million of net service revenue, respectively, due to the suspension of the 2% sequestration payment 27
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adjustment. We recognized
•Waiver of the application of site-neutral payment: Under Section 1886(m)(6)(A)(i) of the Act, the claims processing systems was updated to pay all LTACH cases admitted during the COVID-19 PHE period at the LTACH-PPS standard federal rate, effective for claims with an admission date occurring on or afterJanuary 27, 2020 through the end of the PHE period. During the three and nine months endedSeptember 30, 2022 , we recognized$4.9 million and$17.1 million of net service revenue, respectively, due to the suspension of LTACH site-neutral payments. We recognized$5.7 million and$18.2 million of net service revenue, respectively, during the three and nine months endedSeptember 30, 2021 . During the three and nine months endedSeptember 30, 2022 , we did experience higher costs related to higher contract labor utilization due to an increase in our clinicians being on quarantine from COVID-19 exposure or potential exposure. There is no guarantee that we won't experience similar impacts in the future or experience a decrease in demand for our services as a result of COVID-19. The rapid development and fluidity of this situation makes it difficult to predict the ultimate impact of COVID-19 on our business and operations. Nevertheless, COVID-19 presents a material uncertainty which could materially impact our business and results of operations in the future.
OnOctober 31, 2022 , CMS released the final rule for fiscal year 2023. The final rule states the Medicare base payments will increase by 0.7%. The increase reflects the effects of the 4.0% home health payment update, a 3.5% decrease from the effects of the prospective permanent behavioral assumption adjustment of -3.925% that is being phased-in, and 0.2% increase from the effects of an update to the fixed-dollar ratio used in determining outlier payments. The impact of the -3.925% permanent behavioral assumption adjustment is -3.5%, as the permanent adjustment is only made to the 30-day payment rate and not the Low Utilization Payment Adjustment per visit payment rates. CMS also finalized a permanent 5% cap on negative wage index changes regardless of the underlying reason for the decrease. Hospice
On
•A payment rate increase of 3.8%, which applies a 4.1% market basket update and a 0.3 percentage point reduction for productivity.
•Hospice agencies that fail to meet quality reporting requirements will receive a two percentage point reduction to the annual market basket update.
•An increase of the aggregate cap value of
•A permanent cap on negative wage index changes greater than a 5% decrease from the prior year, regardless of the underlying reason for the decrease.
The following are the final fiscal year 2023 base payment rates for various levels of care, which began onOctober 1, 2022 and will endSeptember 30, 2023 and the final fiscal year 2022 base payment rates for various levels of care, which began onOctober 1, 2021 and endedSeptember 30, 2022 (payment rates for hospice providers not complying with the hospice quality reporting requirements will be 2% lower than the values referenced below): 28
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Final Fiscal Year 2023 Fiscal Year 2022
Description Rate per patient day Rate per patient day
Routine Home Care days 1-60 $ 211.34 $ 203.40
Routine Home Care days 60+ $ 167.00 $
160.74
Continuous Home Care $ 1,522.04 $
1,462.52
Full rate = 24 hours of care$60.94 = hourly rate for 2022$63.42 = hourly rate for 2023 Inpatient Respite Care $ 492.10 $ 473.75 General Inpatient Care $ 1,110.76 $ 1,068.28 Facility-based OnAugust 1, 2022 , CMS issued the final rule for the fiscal year 2023 Long-Term Care Hospital Prospective Payment System ("LTCH PPS"). LTCH PPS payments will increase 2.3% due primarily to the annual standard federal rate update (the productivity-adjusted market basket increase) of 3.8% and a decrease in high cost outlier payments. RESULTS OF OPERATIONS
Three months ended
Summary consolidated financial information
The following table summarizes our consolidated results of operations for the three months endedSeptember 30, 2022 and 2021 (amounts in thousands, except percentages, which are percentages of consolidated net service revenue, unless indicated otherwise): Increase 2022 2021 (Decrease) Net service revenue$ 576,913 $ 565,451 $ 11,462 Cost of service revenue (excluding depreciation and amortization) 347,772 60.3 % 343,862 60.8 % 3,910 General and administrative expenses 189,051 32.8 176,444 31.2 12,607 Impairment of intangibles and other 2,059 0.4 - - 2,059 Interest expense (9,053) (1.6) (1,135) (0.2) 7,918 Income tax expense 6,966 30.1 (1) 10,150 27.5 (1) (3,184) Net income attributable to noncontrolling interests 4,703 0.8 6,126 1.1 (1,423) Net income attributable to LHC Group, Inc.'s common stockholders$ 17,309 $ 27,734 $ (10,425)
(1) Effective tax rate as a percentage of income from continuing operations
attributable to our common stockholders, excluding the excess tax benefits
realized of
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The following table summarizes cost of service revenue (amounts in thousands, except percentages, which are percentages of the segment's respective net service revenue):
Three months ended
2022 2021
Home health services:
Salaries, wages and benefits $ 196,715 52.7 % $ 209,972 54.3 %
Transportation 10,044 2.7 9,358 2.4
Supplies and services 11,031 3.0 11,509 3.0
Total $ 217,790 58.3 % $ 230,839 59.7 %
Hospice services:
Salaries, wages and benefits $ 50,051 48.2 % $ 37,485 45.4 %
Transportation 3,400 3.3 2,354 2.8
Supplies and services 15,500 14.9 11,792 14.3
Total $ 68,951 66.4 % $ 51,631 62.5 %
Home and community-based services:
Salaries, wages and benefits $ 34,894 72.7 % $ 33,632 73.4 %
Transportation 455 0.9 429 0.9
Supplies and services 378 0.8 325 0.7
Total $ 35,727 74.5 % $ 34,386 75.0 %
Facility-based services:
Salaries, wages and benefits $ 18,111 57.6 % $ 17,499 54.0 %
Transportation 66 0.2 12 -
Supplies and services 4,372 13.9 6,214 19.2
Total $ 22,549 71.7 % $ 23,725 73.2 %
HCI:
Salaries, wages and benefits $ 2,694 13.2 % $ 3,214 18.0 %
Transportation 49 0.2 50 0.3
Supplies and services 12 0.1 17 0.1
Total $ 2,755 13.5 % $ 3,281 18.4 %
Consolidated:
Salaries, wages and benefits $ 302,465 52.4 % $ 301,802 53.4 %
Transportation 14,014 2.4 12,203 2.1
Supplies and services 31,293 5.4 29,857 5.3
Total $ 347,772 60.3 % $ 343,862 60.8 %
During 2022, cost of service revenue decreased as a percentage of net service
revenue from 60.8% to 60.3%. Our cost of service revenue was impacted by
decreased employee medical insurance claim costs as we experienced decreased
COVID-19 claims, decreased pharmaceutical costs, and less catastrophic claims as
compared to the three months ended September 30, 2021 .
Cost of service revenue in our hospice segment increased due to acquisitions purchased during the latter half of 2021.
Cost of service revenue in our home and community-based segment received the
benefit of
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General and administrative expenses
The following table summarizes general and administrative expenses (amounts in
thousands, except percentages, which are percentages of the segment's respective
net service revenue):
Three months ended
2022 2021
Home health services:
General and administrative $ 122,857 32.9 % $ 123,656 32.0 %
Depreciation and amortization 3,195 0.9 3,039 0.8
Total $ 126,052 33.8 % $ 126,695 32.8 %
Hospice services:
General and administrative $ 31,196 30.1 % $ 21,710 26.3 %
Depreciation and amortization 1,188 1.1 838 1.0
Total $ 32,384 31.2 % $ 22,548 27.3 %
Home and community-based services:
General and administrative $ 11,561 24.1 % $ 11,335 24.7 %
Depreciation and amortization 332 0.7 429 0.9
Total $ 11,893 24.8 % $ 11,764 25.6 %
Facility-based services:
General and administrative $ 11,296 35.9 % $ 10,230 31.6 %
Depreciation and amortization 802 2.6 820 2.5
Total $ 12,098 38.5 % $ 11,050 34.1 %
HCI:
General and administrative $ 6,381 31.3 % $ 4,155 23.2 %
Depreciation and amortization 243 1.2 232 1.3
Total $ 6,624 32.5 % $ 4,387 24.5 %
Consolidated:
General and administrative $ 183,291 31.8 % $ 171,086 30.3 %
Depreciation and amortization 5,760 1.0 5,358 0.9
Total $ 189,051 32.8 % $ 176,444 31.2 %
During 2022, consolidated general and administrative expenses increased as a
percentage of net service revenue from 31.2% to 32.8% as we incurred higher
administrative costs related to acquisitions purchased during the latter half of
2021.
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Nine months ended
Summary consolidated financial information
The following table summarizes our consolidated results of operations for the nine months endedSeptember 30, 2022 and 2021 (amounts in thousands, except percentages, which are percentages of consolidated net service revenue, unless indicated otherwise): Increase 2022 2021 (Decrease) Net service revenue$ 1,724,601 $ 1,636,193 $ 88,408 Cost of service revenue (excluding depreciation and amortization) 1,052,093 61.0 % 972,006 59.4 % 80,087 General and administrative expenses 569,800 33.0 506,754 31.0 63,046 Impairment of intangibles and other 4,130 0.2 937 0.1 3,193 Interest expense (19,631) (1.1) (1,541) (0.1) 18,090 Income tax expense 17,014 27.8 (1) 32,909 26.6 (1) (15,895) Net income attributable to noncontrolling interests 14,586 0.8 22,010 1.3 (7,424) Net income attributable to LHC Group, Inc.'s common stockholders$ 47,347 $ 100,036 $ (52,689)
(1) Effective tax rate as a percentage of income from continuing operations
attributable to our common stockholders, excluding the excess tax benefits
realized of
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Cost of service revenue
The following table summarizes cost of service revenue (amounts in thousands, except percentages, which are percentages of the segment's respective net service revenue):
Nine months ended
2022 2021
Home health services:
Salaries, wages and benefits $ 613,745 53.2 % $ 601,998 52.0 %
Transportation 29,509 2.6 27,408 2.4
Supplies and services 31,254 2.7 33,731 2.9
Total $ 674,508 58.4 % $ 663,137 57.3 %
Hospice services:
Salaries, wages and benefits $ 149,340 48.4 % $ 93,950 44.9 %
Transportation 9,490 3.1 6,151 2.9
Supplies and services 44,034 14.3 29,747 14.2
Total $ 202,864 65.8 % $ 129,848 62.0 %
Home and community-based services:
Salaries, wages and benefits $ 94,650 69.1 % $ 101,711 71.0 %
Transportation 1,300 0.9 1,259 0.9
Supplies and services 520 0.4 971 0.7
Total $ 96,470 70.4 % $ 103,941 72.6 %
Facility-based services:
Salaries, wages and benefits $ 54,755 58.1 % $ 48,420 50.0 %
Transportation 180 0.2 29 -
Supplies and services 14,649 15.5 16,911 17.5
Total $ 69,584 73.8 % $ 65,360 67.5 %
HCI:
Salaries, wages and benefits $ 8,502 27.5 % $ 9,527 32.0 %
Transportation 140 0.5 166 0.6
Supplies and services 25 0.1 27 0.1
Total $ 8,667 28.0 % $ 9,720 32.7 %
Consolidated:
Salaries, wages and benefits $ 920,992 53.4 % $ 855,606 52.3 %
Transportation 40,619 2.4 35,013 2.1
Supplies and services 90,482 5.2 81,387 5.0
Total $ 1,052,093 61.0 % $ 972,006 59.4 %
During 2022, cost of service revenue in our home health, hospice, and
facility-based segments were impacted by the continued labor market challenges.
These challenges are, but not limited to, consistent utilization of nursing
contract labor at a higher cost-per-visit rate, payments of sign-on and
retention bonuses, increased clinician wages, and labor costs associated with
acquisitions purchased during the latter half of 2021.
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General and administrative expenses
The following table summarizes general and administrative expenses (amounts in
thousands, except percentages, which are percentages of the segment's respective
net service revenue):
Nine months ended
2022 2021
Home health services:
General and administrative $ 377,970 32.8 % $ 360,727 31.2 %
Depreciation and amortization 9,512 0.8 8,610 0.7
Total $ 387,482 33.6 % $ 369,337 31.9 %
Hospice services:
General and administrative $ 93,457 30.3 % $ 56,874 27.2 %
Depreciation and amortization 3,695 1.2 1,915 0.9
Total $ 97,152 31.5 % $ 58,789 28.1 %
Home and community-based services:
General and administrative $ 34,806 25.4 % $ 34,016 23.7 %
Depreciation and amortization 949 0.7 1,200 0.8
Total $ 35,755 26.1 % $ 35,216 24.5 %
Facility-based services:
General and administrative $ 33,121 35.1 % $ 30,765 31.8 %
Depreciation and amortization 2,616 2.8 2,448 2.5
Total $ 35,737 37.9 % $ 33,213 34.3 %
HCI:
General and administrative $ 12,963 41.9 % $ 9,473 31.8 %
Depreciation and amortization 711 2.3 726 2.4
Total $ 13,674 44.2 % $ 10,199 34.2 %
Consolidated:
General and administrative $ 552,317 32.0 % $ 491,855 30.1 %
Depreciation and amortization 17,483 1.0 14,899 0.9
Total $ 569,800 33.0 % $ 506,754 31.0 %
During 2022, consolidated general and administrative expenses increased as a
percentage of revenue from 31.0% to 33.0%. We incurred higher administrative
costs related to acquisitions purchased during the latter half of 2021.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Our cash balance atSeptember 30, 2022 was$10.5 million and we have$243.4 million of available liquidity from cash and our revolving credit facility, net of$4.8 million liabilities associated with the CAAP. We have additional capacity in our revolving credit facility of$300.0 million per our accordion expansion. Based on our current plan of operations, including acquisitions, we believe this amount, when combined with expected cash flows from operations, will be sufficient to fund our growth strategy and to meet our anticipated operating expenses, capital expenditures, and debt service obligations for at least the next 12 months. Our principal source of liquidity for operating activities is the collection of patient accounts receivable, most of which are collected from governmental and third-party commercial payors. We also have the ability to obtain additional liquidity, if necessary, through our credit facility, which provides for aggregate borrowings, including outstanding letters of credit.
The following table summarizes changes in cash (amounts in thousands):
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Nine months ended September 30,
2022 2021Net cash provided by (used in):
Operating activities $ 10,038 $ (51,616)
Investing activities (31,994) (412,242)
Financing activities 22,669 206,805
Change in cash $ 713 $ (257,053)
Cash at beginning of period 9,809
286,569
Cash at end of period $ 10,522 $ 29,516
We experienced a decline in net income during the nine months ended September
30, 2022 as compared to the nine months ended September 30, 2021 . The decline
was related to decreased census, increased labor costs, and increased general
and administrative costs related to the Merger and acquisitions purchased during
the latter part of 2021. Our accounts payables and accrued expenses increased as
we implemented a new enterprise system and utilized payment management
strategies incorporated within the new system. During the nine months ended
September 30, 2022 , CMS recouped $101.6 million of the CAAP, as compared to
$141.6 million during the nine months ended September 30, 2021 .
We acquired $2.6 million in business combinations during the nine months ended
September 30, 2022 as compared to $383.5 million of business combinations during
the nine months ended September 30, 2021 .
In addition, we utilized our credit agreement for funding of the share
repurchase plan and recoupments of the CAAP during the months ended
Indebtedness
OnAugust 3, 2021 , we entered into an Amended and Restated Senior Credit Facility (the "2021 Amended Credit Agreement"), which provided a senior, secured revolving line of credit commitment with a maximum principal borrowing limit of$800.0 million , which included an additional$500.0 million accordion expansion, and a letter of credit sub-limit equal to$75.0 million . OnDecember 31, 2021 , the aggregate commitment was increased to a maximum borrowing limit of$1.0 billion , with an additional$300.0 million accordion expansion. The expiration date of the 2021 Amended Credit Agreement isAugust 3, 2026 . Our obligations under the 2021 Amended Credit Agreement are secured by substantially all of our assets and our wholly-owned subsidiaries (subject to customary exclusions), which assets include our equity ownership of our wholly-owned subsidiaries and our equity ownership in joint venture entities. Our wholly-owned subsidiaries also guarantee the obligations of the Company under the 2021 Amended Credit Agreement. Revolving loans under the 2021 Amended Credit Agreement bear interest, as selected us, at either (i) the prevailing London Interbank Offered Rate ("LIBOR") (with interest periods of one, three or six months at our option) plus a spread of 1.25% to 2.0% based on our quarterly consolidated Leverage Ratio or (ii) the prevailing prime or base rate plus a spread of 0.25% to 1.00% based on our quarterly consolidated Leverage Ratio. Swing line loans bear interest at the Base Rate. We are limited to 15 Eurodollar borrowings outstanding at any time. We are required to pay a commitment fee for the unused commitments at rates ranging from 0.15% to 0.30% per annum depending upon our quarterly consolidated Leverage Ratio. The Base Rate as ofSeptember 30, 2022 was 7.25% and the LIBOR rate was 5.13%. As ofSeptember 30, 2022 , the effective interest rate on outstanding borrowings under the 2021 Amended Credit Agreement was 4.98%. OnMarch 5, 2021 , theICE Benchmark Administration , the administrator of LIBOR, announced its intention to cease the publication of LIBOR settings for 1-month, 3-month, 6-month, and 12-month LIBOR borrowings immediately onJune 30, 2023 .JPMorgan Chase Bank, N.A will transition our 2021 Amended Credit Agreement to an alternate rate to CME Term SOFR Reference Rate ("SOFR"), which is administered byCME Group Benchmark Administration Ltd ("CME"). Due to the differences observed between LIBOR rates and SOFR published rates,JPMorgan Chase Bank, N.A . will use a credit spread adjustment ("CSA") in order to minimize value transfer and leave the existing margin applicable to our 2021 Amended Credit Agreement. The CSA used byJPMorgan Chase Bank, N.A . is based on the average of the differences between LIBOR and SOFR over a 12-month period and will be added to SOFR. 35
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As ofSeptember 30, 2022 , we had$738.0 million drawn, letters of credit issued in the amount of$24.3 million , and$237.7 million of remaining borrowing capacity available under the 2021 Amended Credit Agreement. AtDecember 31, 2021 , we had$661.2 million drawn and letters of credit issued in the amount of$24.3 million under the 2021 Amended Credit Facility. Under the 2021 Amended Credit Agreement withJPMorgan Chase Bank, N.A ., a letter of credit fee shall be equal to the applicable Eurodollar rate on the average daily amount of the letter of credit exposure. The agent's standard up-front fee and other customary administrative charges will also be due upon issuance of the letter of credit along with a renewal fee on each anniversary date of such issuance while the letter of credit is outstanding. Borrowings accrue interest under the 2021 Amended Credit Agreement at either the Base Rate or the Eurodollar rate, and are subject to the applicable margins set forth below: Base Eurodollar Rate Commitment Leverage Ratio Margin Margin Fee Rate ?1.00:1.00 1.25 % 0.25 % 0.15 % >1.00:1.00 ? 2.00:1.00 1.50 % 0.50 % 0.20 % >2.00:1.00 ? 3.00:1.00 1.75 % 0.75 % 0.25 % >3.00:1.00 2.00 % 1.00 % 0.30 % Our 2021 Amended Credit Agreement contains customary affirmative, negative and financial covenants, which are subject to customary carve-outs, thresholds, and materiality qualifiers. The Credit Facility allows us to make certain restricted payments within certain parameters provided we maintain compliance with those financial ratios and covenants after giving effect to such restricted payments or, in the case of repurchasing shares of its stock, so long as such repurchases are within certain specified baskets. Our 2021 Amended Credit Agreement also contains customary events of default, which are subject to customary carve-outs, thresholds, and materiality qualifiers. These include bankruptcy and other insolvency events, cross-defaults to other debt agreements, a change in control involving us or any subsidiary guarantor, and the failure to comply with certain covenants.
At
Contingencies
For a discussion of contingencies, see Note 7 of the Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference.
Off-Balance Sheet Arrangements
We do not currently have any off-balance sheet arrangements with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in these relationships.
Critical Accounting Policies
For a discussion of critical accounting policies, see Part II. Item 7 of our 2021 Form 10-K.
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