Derivative Instruments and Fair Value Measurements

6 Months Ended

Jun. 30, 2012

Derivative Instruments and Fair Value Measurements [Abstract]

Derivative Instruments and Fair Value Measurements [Text Block]

Note 5. Derivative Instruments and Fair Value Measurements

Interest-Rate Swaps

The Company has entered into interest rate swaps to effectively convert a portion of its debt from a floating to a fixed-rate basis. Under these swap contracts, exclusive of applicable margins, the Company will pay fixed rate interest and receive floating-rate interest amounts based on three-month LIBOR settings. The swaps are designated and qualify as cash flow hedges. The following table summarizes the interest rate swaps in place as of June 30, 2012 and December 31, 2011.

Notional Amount Outstanding – June 30, 2012		Notional Amount Outstanding – December 31, 2011		Fixed Rate			Maturity
$	36,752,038	$	36,752,038		5.225	%		08/2012
81,500,000			81,500,000		3.895	%		01/2013
84,800,000			84,800,000		3.900	%		09/2013
$	203,052,038	$	203,052,038

The Company records the fair value of the interest rate swaps as an asset or liability on its balance sheet. The effective portion of the swap is recorded in accumulated other comprehensive income. No portion of the cash flow hedges was ineffective during the period ended June 30, 2012. Accordingly, liabilities of $6,223,622 and $9,486,116 have been recorded in Fair value of derivative instruments in the Company’s balance sheets as of June 30, 2012 and December 31, 2011, respectively.

Forward freight agreements (FFAs), bunker swaps and freight derivatives

The Company trades in the FFAs, bunker swaps and freight derivatives markets, with objective to utilize these markets as economic hedging instruments that reduce the risk of specific vessels to changes in the freight market and or bunker costs. The Company’s FFAs, bunker swaps and freight derivatives have not qualified for hedge accounting treatment.

The effect of cash flow hedging relationships on the balance sheets as of June 30, 2012 and December 31, 2011, and the statement of operations for the periods ended June 30, 2012 and 2011 are as follows:

The effect of designated derivative instruments on the consolidated balance sheets:

	Amount of Loss Recognized in AOCI on Derivative (Effective Portion)
Derivatives designated for cash flow hedging relationships		June 30, 2012			December 31, 2011
Interest rate swaps	$	(6,223,622	)	$	(9,486,116	)
Total	$	(6,223,622	)	$	(9,486,116	)

The effect of non-designated derivative instruments on statements of operations:

Derivatives not designated			Amount of Gain (Loss)					Amount of Gain
as hedging instruments			Three Months Ended					Six Months Ended
	Location of Gain		June 30, 2012		June 30, 2011			June 30, 2012		June 30, 2011
		(Loss) Recognized
FFAs, bunker swaps, freight     and bunker derivatives		Other income	$	7,076	$	(76,706	)	$	1,028,375	$	973,909
Total			$	7,076	$	(76,706	)	$	1,028,375	$	973,909

Cash Collateral Disclosures

The Company does not offset fair value amounts recognized for derivatives by the right to reclaim cash collateral or the obligation to return cash collateral. The amount of collateral to be posted is defined by the terms of the respective master agreement executed with counterparties or exchanges and is required when agreed upon threshold limits are exceeded. At June 30, 2012, the Company’s collateral related to its FFAs, bunker swaps and freight derivative transactions was $15,835. As of June 30, 2012, the Company had no outstanding amounts paid as collateral to derivative fair value positions.

Fair Value Measurements

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Cash, cash equivalents and restricted cash—the carrying amounts reported in the consolidated balance sheet for interest-bearing deposits approximate their fair value due to their short-term nature thereof.

Debt—the carrying amounts of borrowings under the revolving credit agreement approximate their fair value, due to the variable interest rate nature thereof.

Interest rate swaps—the fair value of interest rate swaps (used for hedging purposes) is the estimated amount that the Company would receive or pay to terminate the swaps at the reporting date.

Forward freight agreements (FFAs)—the fair value of FFAs is determined based on quoted rates.

Freight and bunker derivative instruments—the fair value of freight and bunker derivative contracts is the estimated amount that the Company would receive or pay to terminate the option contracts at the reporting date.

Bunker swaps—the fair value of bunker swaps is the estimated amount that the Company would receive or pay to terminate the swaps at the reporting date.

The Company defines fair value, establishes a framework for measuring fair value and provides disclosures about fair value measurements. The fair value hierarchy for disclosure of fair value measurements is as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities. Our Level 1 non-derivative include cash, money-market account and restricted cash account.

Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable. Our Level 2 non-derivative include our term loan account.

Level 3 – Inputs that are unobservable (for example cash flow modeling inputs based on assumptions)

The following table presents information about our assets and liabilities measured at fair value on a recurring basis as of June 30, 2012 and December 31, 2011, aggregated by the level in the fair value hierarchy within which those measurements fell.

	June 30, 2012						December 31, 2011
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets:
Bunker swaps		—		—		—	$	142,750		—		—
Bunker derivative instruments		—		—		—		—	$	261,000		—
Liabilities:
Interest rate swaps		—	$	6,223,622		—		—	$	9,486,116		—
Bunker swaps		—		—		—	$	53,000		—		—
Bunker derivative instruments		—		—		—		—	$	104,640		—