11. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of financial instruments has been estimated by the Company using available market information as of March 31, 2019 and December 31, 2018, and valuation methodologies considered appropriate. The estimates presented in the table below are not necessarily indicative of amounts the Company could realize in a current market exchange (in millions):


	March 31, 2019				December 31, 2018
	Carrying		Estimated Fair		Carrying		Estimated Fair
	Amount		Value		Amount		Value
Assets:
Cash and cash equivalents	$	277	$	277	$	196	$	196
Investments in equity securities		131		131		137		137
Available-for-sale securities		95		95		93		93
Trading securities		11		11		11		11
Liabilities:
Contingent Value Right		-		-		-		-
Credit Facility		-		-		1,602		1,564
8% Senior Notes due 2019		155		153		155		146
7⅛% Senior Notes due 2020		121		115		121		100
5⅛% Senior Secured Notes due 2021		985		983		984		934
6⅞% Senior Notes due 2022		2,596		1,745		2,593		1,175
6¼% Senior Secured Notes due 2023		3,069		2,919		3,067		2,819
8⅝% Senior Secured Notes due 2024		1,022		1,034		1,021		1,025
8% Senior Secured Notes due 2026		1,572		1,536		-		-
Junior-Priority Secured Notes due 2023		1,751		1,444		1,750		1,380
Junior-Priority Secured Notes due 2024		1,339		1,011		1,338		976
ABL Facility and other debt		762		762		734		734

The carrying value of the Company’s long-term debt in the above table is presented net of unamortized deferred debt issuance costs. The estimated fair value is determined using the methodologies discussed below in accordance with accounting standards related to the determination of fair value based on the U.S. GAAP fair value hierarchy as discussed in Note 12. The estimated fair value for financial instruments with a fair value that does not equal its carrying value is considered a Level 1 valuation. The Company utilizes the market approach and obtains indicative pricing from the administrative agent to the Credit Facility to determine fair values or through publicly available subscription services such as Bloomberg where relevant.

Cash and cash equivalents. The carrying amount approximates fair value due to the short-term maturity of these instruments (less than three months).

Investments in equity securities. Estimated fair value is based on closing price as quoted in public markets. Prior to the adoption of ASU 2016-01 on January 1, 2018, such investments were classified as either available-for-sale or trading securities.

Available-for-sale securities. Estimated fair value is based on closing price as quoted in public markets or other various valuation techniques.

Trading securities. Estimated fair value is based on closing price as quoted in public markets.

Contingent Value Right. Estimated fair value is based on the closing price as quoted on the public market where the CVR is traded.

Credit Facility. Estimated fair value is based on publicly available trading activity and supported with information from the Company’s bankers regarding relevant pricing for trading activity among the Company’s lending institutions.

8% Senior Notes due 2019. Estimated fair value is based on the closing market price for these notes.

7⅛% Senior Notes due 2020. Estimated fair value is based on the closing market price for these notes.

5⅛% Senior Secured Notes due 2021. Estimated fair value is based on the closing market price for these notes.

6⅞% Senior Notes due 2022. Estimated fair value is based on the closing market price for these notes.

6¼% Senior Secured Notes due 2023. Estimated fair value is based on the closing market price for these notes.

8⅝% Senior Secured Notes due 2024. Estimated fair value is based on the closing market price for these notes.

8% Senior Secured Notes due 2026. Estimated fair value is based on the closing market price for these notes.

Junior-Priority Secured Notes due 2023. Estimated fair value is based on the closing market price for these notes.

Junior-Priority Secured Notes due 2024. Estimated fair value is based on the closing market price for these notes.

ABL Facility and other debt. The carrying amount of the ABL Facility and all other debt approximates fair value due to the nature of these obligations.

Interest rate swaps. The fair value of interest rate swap agreements is the amount at which they could be settled, based on estimates calculated by the Company using a discounted cash flow analysis based on observable market inputs and validated by comparison to estimates obtained from the counterparty. The Company incorporates credit valuation adjustments (“CVAs”) to appropriately reflect both its own nonperformance or credit risk and the respective counterparty’s nonperformance or credit risk in the fair value measurements. In adjusting the fair value of its interest rate swap agreements for the effect of nonperformance or credit risk, the Company has considered the impact of any netting features included in the agreements.

The Company assesses the effectiveness of its hedge instruments on a quarterly basis. For the three months ended March 31, 2019 and 2018, the Company completed an assessment of the cash flow hedge instruments and determined the hedges to be highly effective. The Company has also determined that the ineffective portion of the hedges do not have a material effect on the Company’s condensed consolidated financial position, operations or cash flows. The counterparties to the interest rate swap agreements expose the Company to credit risk in the event of nonperformance by such counterparties. However, at March 31, 2019, the Company does not anticipate nonperformance by these counterparties. The Company does not hold or issue derivative financial instruments for trading purposes.

Interest rate swaps consisted of the following at March 31, 2019:



						Asset (Liability)
	Notional Amount					Fair Value
Swap #	(in millions)		Fixed Interest Rate		Termination Date	(in millions)
1	$	200	2.515	%	August 30, 2019	$	-
2		200	2.613	%	August 30, 2019		-
3		300	2.892	%	August 30, 2020		(2)

The Company is exposed to certain risks relating to its ongoing business operations. The risk managed by using derivative instruments is interest rate risk. Interest rate swaps are entered into to manage interest rate fluctuation risk associated with the term loans in the Credit Facility. Companies are required to recognize all derivative instruments as either assets or liabilities at fair value in the condensed consolidated statement of financial position. The Company designates its interest rate swaps as cash flow hedges. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

Assuming no change in interest rates in effect as of March 31, 2019, approximately $3 million of interest income resulting from the spread between the fixed and floating rates defined in each interest rate swap agreement will be recognized during the next 12 months. If interest rate swaps do not remain highly effective as a cash flow hedge, the derivatives’ gains or losses resulting from the change in fair value reported through OCI will be reclassified into earnings.

The following tabular disclosure provides the amount of pre-tax (loss) gain recognized as a component of OCI during the three months ended March 31, 2019 and 2018 (in millions):


	Amount of Pre-Tax (Loss) Gain
	Recognized in OCI (Effective Portion)
Derivatives in Cash Flow Hedging	Three Months Ended March 31,
Relationships	2019		2018
Interest rate swaps	$	(2)	$	17

The following tabular disclosure provides the location of the effective portion of the pre-tax (gain) loss reclassified from accumulated other comprehensive loss (“AOCL”) into interest expense on the condensed consolidated statements of loss during the three months ended March 31, 2019 and 2018 (in millions):

The fair values of derivative instruments in the condensed consolidated balance sheets as of March 31, 2019 and December 31, 2018 were as follows (in millions):

Asset Derivatives

Liability Derivatives

March 31, 2019

December 31, 2018

March 31, 2019

December 31, 2018

Balance

Sheet

Location

Fair Value

Location

Fair Value

Location

Fair Value

Location

Fair Value

Derivatives

designated as

Other

hedging

assets,

long-term

instruments

net

liabilities

Amount of Pre-Tax (Gain) Loss Reclassified

from AOCL into Income (Effective Portion)

Location of (Gain) Loss Reclassified from

Three Months Ended March 31,

AOCL into Income (Effective Portion)

Interest expense, net