Fair Value Measurements

6 Months Ended

Jun. 30, 2020

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 Condensed Consolidated Balance Sheets for interest-bearing deposits approximate their fair value due to the short-term nature thereof.

Debt—the carrying amounts of borrowings under the Norwegian Bond Debt, Convertible Bond Debt, Super Senior Facility, and the New Ultraco Debt Facility (prior to application of the discount and debt issuance costs) including the Revolving Loan, 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 short-term investments and debt balances under the Convertible Bond Debt, Norwegian Bond Debt, Super Senior Facility, and the New Ultraco Debt Facility. Interest rate swaps are considered to be a Level 2 item as the Company, using the income approach to value the derivatives, uses observable Level 2 market inputs at measurement date and standard valuation techniques to convert future amounts to a single present amount assuming that participants are motivated, but not compelled to transact.

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

As of June 30, 2020, the Company determined there were impairment indicators present for one of our chartered-in vessel contracts and, as a result, we recorded an operating lease impairment of $0.4 million. The operating lease impairment was included as a component of Operating (loss)/income in our Consolidated Statement of Operations for the three and six months ended June 30, 2020.

June 30, 2020


			Fair Value
	Carrying Value		Level 1		Level 2
Assets
Cash and cash equivalents ⁽¹⁾	$	98,607,058	$	98,607,058	$	—
Liabilities
Norwegian Bond Debt ⁽²⁾	184,000,000		—		172,960,000
New Ultraco Debt Facility⁽³⁾	237,051,742		—		237,051,742
Super Senior Facility⁽³⁾	15,000,000		—		15,000,000
Convertible Bond Debt ⁽⁴⁾	114,120,000		—		68,899,950

December 31, 2019


			Fair Value
	Carrying Value		Level 1		Level 2
Assets
Cash and cash equivalents⁽¹⁾	$	59,130,285	$	59,130,285	$	—
Liabilities
Norwegian Bond Debt ⁽²⁾	188,000,000		—		192,626,680
New Ultraco Debt Facility ⁽³⁾	172,613,988		—		172,613,988
Convertible Bond Debt ⁽⁴⁾	114,120,000		—		118,844,868

⁽¹⁾ Includes restricted cash (current and non-current) of $0.08 million at June 30, 2020 and $5.5 million at December 31, 2019.

⁽²⁾ The fair value of the Norwegian Bond Debt is based on the last trades on June 26, 2020 and December 31, 2019 on Bloomberg.com.

⁽³⁾ The fair value of the liabilities is based on the required repayment to the lenders if the debt was discharged in full on June 30, 2020.

⁽⁴⁾ The fair value of the Convertible Bond Debt is based on the last trade on July 7, 2020 and November 21, 2019 on Bloomberg.com.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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