Note

10.

Derivative Instruments and Fair Value Measurements

Historically, the Company 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 pays fixed rate interest and receives floating-rate interest amounts based on

three

-month LIBOR settings. The swaps are designated and qualify as cash flow hedges. As of

December

31,

2016

and

December

31,

2015,

the Company did not have any open positions and as such, no asset or liability is recorded in the accompanying consolidated balance sheets.

Forward freight agreements, bunker swaps and freight derivatives

The Company trades in forward freight agreements (“FFAs”), with the objective of utilizing this market as economic hedging instruments that reduce the risk of specific vessels to changes in the freight market. The Company’s FFAs have not qualified for hedge accounting treatment. As such, unrealized and realized gains are recognized as a component of other expense in the Consolidated Statement of Operations for the year ended

December

31,

2016.

The Company did not have any open positions in FFAs for the Successor as of

December

31,

2016

and

December

31,

2015.

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

Derivatives not designated as hedging instruments	Location of loss recognized	Amount of Loss				Amount of Loss
		Successor						Predecessor
		For the year ended December 31, 2016		For the year ended December 31, 2015		October 16, 2014 to December 31, 2014		January 1, 2014 to October 15, 2014
FFAs	Other expense	$	561,495	$	-	$	-	$	-
Total		$	561,495	$	-	$	-	$	-

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. As of

December

31,

2016

and

2015,

the Company does not have any open positions and there was no cash collateral related to derivative instruments under its collateral security arrangements.

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 sheets for interest-bearing deposits approximate their fair value due to their short-term nature thereof.

Debt

—the carrying amounts of borrowings under the First Lien Facility (prior to application of the discount and debt issuance costs) including the revolving credit agreement approximate their fair value, due to the variable interest rate nature thereof.

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

– Quoted prices in active markets for identical assets or liabilities. Our Level

non-derivatives include cash, money-market accounts and restricted cash accounts.

Level

– Quoted prices for similar assets and liabilities in active markets or inputs that are observable. Our Level

non-derivatives include our debt balances under the First Lien Facility.

Level

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

As of

December

31,

2016,

as part of its fleet renewal program, the Company considers it probable that it will divest some of its older vessels as well as certain less efficient vessels from its fleet to achieve operating cost savings. For the

sixteen

vessels identified, the Company projects that they will probably be sold within the next

two

years. Based on market prices for such vessels and our projected undiscounted cash flows prior to sale, such vessels were determined to be impaired, and written down to their current fair value, which was determined by obtaining broker quotes from

two

unaffiliated shipbrokers. As a result, we recorded an impairment charge of

$122,860,600

in the

fourth

quarter of

2016.

The carrying value of these vessels prior to impairment was

$234,860,600.

The Company considers the valuation on such vessels to be a level

valuation. In addition to the above, we recorded an additional impairment charge of

$6,167,262

first

quarter of

2016

six

vessels which were identified as probable to dispose as of

December

31,

2015.

Out of the

six

vessels initially identified in

2015,

four

vessels were sold during

2016

and

two

vessels were sold in the

first

quarter of

2017

and have been reclassified to assets held for sale as of

December

31,

2016.