Note 6 - Derivative Instruments and Fair Value Measurements

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Derivatives and Fair Value [Text Block]

Note 

6.

Derivative Instruments and Fair Value Measurements

Forward freight agreements and bunker swaps

The Company trades in forward freight agreements (“FFAs”) and bunker swaps, 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 and bunker swaps have

not

qualified for hedge accounting treatment. As such, unrealized and realized losses are recognized as a component of other expense in the condensed consolidated statement of operations.

The effect of non-designated derivative instruments on the condensed consolidated statements of operations is as follows:

Derivatives not designated as hedging instruments	Location of (gain)/loss recognized	Amount of (gain)/loss
		For the Three Months Ended					For the Six Months Ended
		June 30, 2017			June 30, 2016		June 30, 2017			June 30, 2016
FFAs	Other expense	$	(1,049,363	)	$	300,785	$	(788,715	)	$	300,785
Bunker Swaps	Other expense		(42,859	)		—		3,052			—
Total		$	(1,092,222	)	$	300,785	$	(785,663	)	$	300,785

Derivatives no t designated as hedging instruments	Balance Sheet location	Fair value of Derivatives
		June 30, 2017		December 31, 2016
FFAs	Other current assets	$	725,850		—
Bunker Swaps	Other current assets		10,759		—
Total		$	736,609		—

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 in the terms of respective master agreement executed with counterparties or exchanges and is required when agreed upon threshold limits are exceeded. As of

June 

30,

2017

and

December 

31,

2016,

the Company posted cash collateral related to derivative instruments under its collateral security arrangements of

$994,204

and

zero

, respectively, which is recorded within other current assets in the condensed consolidated balance sheets.

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 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

1

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

1

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

Level

2

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

2

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

Level

3

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