| Financial Instruments and Fair Value Disclosures |
12. Financial Instruments and Fair Value Disclosures Our principal financial assets consist of cash and cash equivalents, investment securities, amounts due from related parties, derivative instruments, and trade accounts receivable. Our principal financial liabilities consist of long-term debt, accounts payable, amounts due to related parties, and accrued liabilities. | (a) | Concentration of credit risk: Financial instruments, which may subject us to significant concentrations of credit risk, consist principally of amounts due from our charterers, including the receivables from Helios Pool, and cash and cash equivalents. We limit our credit risk with amounts due from our charterers, including those through the Helios Pool, by performing ongoing credit evaluations of our charterers’ financial condition and generally do not require collateral from our charterers. We limit our credit risk with our cash and cash equivalents and restricted cash by placing it with highly-rated financial institutions. |
| (b) | Interest rate risk: Our long-term bank loans are based on SOFR and hence we are exposed to movements thereto. We entered into interest rate swap agreements in order to hedge a majority of our variable interest rate exposure related to our 2023 A&R Debt Facility. |
| (c) | Fair value measurements: Interest rate swaps are stated at fair value, which is determined using a discounted cash flow approach based on market‑based SOFR swap yield rates. SOFR swap rates are observable at commonly quoted intervals for the full terms of the swaps and, therefore, are considered Level 2 items in accordance with the fair value hierarchy. The fair value of the interest rate swap agreements approximates the amount that we would have to pay or receive for the early termination of the agreements. |
The following table summarizes the location on the balance sheet of the financial assets and liabilities that are carried at fair value on a recurring basis, which comprise our financial derivatives, all of which are considered Level 2 items in accordance with the fair value hierarchy as of: | | | | | | | | | | | | | | | | | December 31, 2023 | | | March 31, 2023 | | | | Other non-current assets | | Long-term liabilities | | Other non-current assets | | Long-term liabilities | | Derivatives not designated as hedging instruments | | Derivative instruments | | Derivative instruments | | Derivative instruments | | Derivative instruments | | Interest rate swap agreements | | $ | 7,628,093 | | $ | — | | $ | 9,278,544 | | $ | — | |
The effect of derivative instruments within the unaudited interim condensed consolidated statements of operations for the periods presented is as follows: | | | | | | | | | | | | | | Three months ended | | Derivatives not designated as hedging instruments | | Location of gain/(loss) recognized | | December 31, 2023 | | December 31, 2022 | | Interest rate swaps—change in fair value | | Unrealized loss on derivatives | | $ | (6,070,320) | | $ | (700,015) | | Interest rate swaps—realized gain | | Realized gain on derivatives | | | 1,916,347 | | | 1,404,004 | | Gain/(Loss) on derivatives, net | | | | $ | (4,153,973) | | $ | 703,989 | |
| | | | | | | | | | | | | | Nine months ended | | Derivatives not designated as hedging instruments | | Location of gain/(loss) recognized | | December 31, 2023 | | December 31, 2022 | | Interest rate swaps—change in fair value | | Unrealized gain/(loss) on derivatives | | | (1,650,452) | | | 4,847,064 | | Interest rate swaps—realized gain | | Realized gain on derivatives | | | 5,692,328 | | | 1,997,815 | | Gain on derivatives, net | | | | $ | 4,041,876 | | $ | 6,844,879 | |
As of December 31, 2023 and March 31, 2023, no fair value measurements for assets or liabilities under Level 1 or Level 3 were recognized in the consolidated balance sheets with the exception of cash and cash equivalents, restricted cash, and investment securities. We did not have any other assets or liabilities measured at fair value on a non-recurring basis during the three and nine months ended December 31, 2023 and 2022. | (d) | Book values and fair values of financial instruments: In addition to the derivatives that we are required to record at fair value on our balance sheet (see (c) above) and investment securities and available-for-sale securities (U.S. treasury notes with an aggregate fair value of $1.8 million as of December 31, 2023 and face values of $1.8 million maturing on September 30, 2024 and other investment securities with an aggregate fair value of $2.9 million as of December 31, 2023) that are included in other current assets in our balance sheet and available-for-sale securities (U.S. treasury notes with an aggregate fair value of $9.7 million as of December 31, 2023 and face values of and $10.0 million maturing March 15, 2025) that are recorded as a non-current asset on our balance sheet that we record at fair value, we have other financial instruments that are carried at historical cost. These financial instruments include trade accounts receivable, amounts due from related parties, cash and cash equivalents, restricted cash, accounts payable, amounts due to related parties and accrued liabilities for which the historical carrying value approximates the fair value due to the short-term nature of these financial instruments. Cash and cash equivalents, restricted cash and investment securities are considered Level 1 items. |
The summary of gains and losses on our investment securities included in other gain/(loss), net on our unaudited interim condensed consolidated statements of operations for the periods presented is as follows: | | | | | | | | | | Three months ended | | | | December 31, 2023 | | December 31, 2022 | | Unrealized gain on investment securities | | $ | 103,127 | | $ | 206,691 | | Realized gain on investment securities | | | 872,557 | | | — | | Net gain on investment securities | | $ | 975,684 | | $ | 206,691 | | | | | | | | | | | | Nine months ended | | | | December 31, 2023 | | December 31, 2022 | | Unrealized gain on investment securities | | $ | 1,209,363 | | $ | 1,013,794 | | Realized gain on investment securities | | | 872,557 | | | 776,770 | | Net gain on investment securities | | $ | 2,081,920 | | $ | 1,790,564 | |
We have long-term debt related to the Corsair Japanese Financing, Cresques Japanese Financing, Cratis Japanese Financing, Copernicus Japanese Financing, Chaparral Japanese Financing, Cougar Japanese Financing, Caravelle Japanese Financing, and Captain Markos Dual-Fuel Japanese Financing, (collectively, the “Japanese Financings”) that incur interest at a fixed-rate. We have long-term debt related to the BALCAP Facility that incurs interest at a fixed-rate. The Japanese Financings and BALCAP Facility are considered Level 2 items in accordance with the fair value hierarchy and the fair value of each is based on a discounted cash flow analysis using current observable interest rates. The following table summarizes the carrying value and estimated fair value of our fixed rate debt obligations as of: | | | | | | | | | | | | | | | | | December 31, 2023 | | | March 31, 2023 | | | | Carrying Value | | Fair Value | | | Carrying Value | | Fair Value | | Corsair Japanese Financing | | $ | 31,958,334 | | $ | 30,913,851 | | | $ | 34,395,834 | | $ | 33,051,190 | | Cresques Japanese Financing | | | 26,051,147 | | | 27,167,568 | | | | 27,377,615 | | | 27,377,615 | | Cratis Japanese Financing | | | 42,520,000 | | | 39,709,573 | | | | 45,580,000 | | | 42,185,289 | | Copernicus Japanese Financing | | | 42,520,000 | | | 39,709,573 | | | | 45,580,000 | | | 42,185,289 | | Chaparral Japanese Financing | | | 60,520,350 | | | 59,271,538 | | | | 62,342,859 | | | 60,701,217 | | Caravelle Japanese Financing | | | 43,400,000 | | | 40,502,655 | | | | 46,100,000 | | | 42,707,169 | | Cougar Japanese Financing | | | 44,600,000 | | | 45,457,642 | | | | 47,300,000 | | | 47,300,000 | | Captain Markos Dual-Fuel Japanese Financing | | | 53,900,000 | | | 56,564,960 | | | | 55,790,000 | | | 55,790,000 | | BALCAP Facility | | | 68,299,438 | | | 64,450,037 | | | | 74,096,125 | | | 69,032,167 | |
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