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 Nine Months Ended
		September 30, 2017			September 30, 2016		September 30, 2017			September 30, 2016
FFAs	Other expense	$	862,224		$	163,499	$	73,509		$	464,284
Bunker Swaps	Other expense	(214,767		)	—		(211,715		)	—
Total		$	647,457		$	163,499	$	(138,206	)	$	464,284



Derivatives not designated as hedging instruments	Balance Sheet location	Fair value of Derivatives
		September 30, 2017			December 31, 2016
FFAs	Fair value of derivatives	$	(281,266	)	$	—
Bunker Swaps	Other current assets	154,615			—
Total		$	(126,651	)	$	—

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 September 30, 2017 and December 31, 2016, the Company posted cash collateral related to derivative instruments under its collateral security arrangements of $1,154,331 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 our debt agreements, excluding the impact of debt discount and debt issuance costs, approximate their fair values, due to the variable interest rate 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, Second Lien Facility and Ultraco Debt Facility.

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



			Fair Value
	Carrying Value		Level 1		Level 2
September 30, 2017
Assets
Cash and cash equivalents ⁽¹⁾	$	64,398,085	$	64,398,085	$	—
Liabilities
First Lien Facility	191,433,141		—		194,899,000
Second Lien Facility	62,540,745		—		75,077,715
Ultraco Debt Facility	59,784,675		—		61,200,000



			Fair Value
	Carrying Value		Level 1		Level 2
December 31, 2016
Assets
Cash and cash equivalents⁽¹⁾	$	76,591,027	$	76,591,027	$	—
Liabilities
First Lien Facility	204,352,318		—		209,099,000
Second Lien Facility	51,591,226		—		67,327,843

⁽¹⁾ Includes non-current restricted cash aggregating $74,917 at September 30, 2017 and December 31, 2016.