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FAIR VALUE MEASUREMENTS | NOTE 25. FAIR VALUE MEASUREMENTS The accounting standard for fair value measurements and disclosures establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value into the following three categories:
Assets and Liabilities Measured at Fair Value on a Recurring Basis Investment in ECOTEC As of December 31, 2022, we owned a 22.7% equity interest in ECOTEC (see Note 11). We have elected the fair value option to account for this investment. The fair value determination of this investment primarily consisted of unobservable inputs, which creates uncertainty in the measurement of fair value as of the reporting date. The significant unobservable inputs used in the fair value measurement, which was valued through an average of an income approach (discounted cash flow method) and a market approach (guideline public company method), are the WACC and the revenue multiples. Significant increases (decreases) in these inputs in isolation would result in a significantly higher (lower) fair value measurement. As of December 31, 2022, the fair value of our investment in ECOTEC is $12.8 million. This fair value measurement is classified as . The significant unobservable inputs are as follows:
The reconciliation of changes in the fair value of our investment in ECOTEC is as follows:
Interest Rate Swaps As of December 31, 2021, the fair value of our interest rate swaps was a liability of $1.3 million. Prior to their expiration in the first quarter of 2022, our interest rate swaps were valued quarterly based on the income approach (discounted cash flows) using market observable inputs, including LIBOR forward curves. These fair value measurements were classified as . Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Compressors During the years ended December 31, 2022 and 2021, we recorded nonrecurring fair value measurements related to our idle compressors (see Note 20). Our estimate of the compressors’ fair value was primarily based on the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use. We discounted the expected proceeds, net of selling and other carrying costs, using a weighted average disposal period of four years. These fair value measurements are classified as Level 3. The fair value of our compressors impaired is as follows:
The significant unobservable inputs used to develop the above fair value measurements were weighted by the relative fair value of the compressors being measured. Additional quantitative information related to our significant unobservable inputs follows:
See Note 20 for further details. Other Financial Instruments The carrying amounts of our cash, receivables and payables approximate fair value due to the short–term nature of those instruments. The carrying amount of borrowings outstanding under our Credit Facility approximates fair value due to its variable interest rate. The fair value of these outstanding borrowings is a Level 3 measurement. The fair value of our fixed rate debt is estimated using yields observable in active markets, which are Level 2 inputs, and was as follows:
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