Fair value of financial instruments

3 Months Ended

Mar. 31, 2021

The objective of a fair value measurement is to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions. U.S. GAAP establishes a hierarchical disclosure framework, which prioritizes and ranks the level of observability of inputs used in measuring fair value as follows:

•Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.

•Level 2: Unadjusted quoted prices for similar assets or liabilities in active markets, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

•Level 3: Inputs are unobservable and reflect our judgments about assumptions that market participants would use in pricing an asset or liability.

We believe the carrying value of our financial instruments, excluding our debt, approximate their fair values as of March 31, 2021 and December 31, 2020. We did not have any Level 3 instruments during any of the periods presented in our Condensed Consolidated Financial Statements.

The following table presents our fair value hierarchy for our financial liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 ($ in thousands):


	March 31, 2021		Level 1		Level 2		Level 3
Fair value measurements on a recurring basis
Interest rate swap	$	40,811	$	—	$	40,811	$	—


	December 31, 2020		Level 1		Level 2		Level 3
Fair value measurements on a recurring basis
Interest rate swap	$	46,340	$	—	$	46,340	$	—

The following table presents our fair value hierarchy for our financial assets measured at fair value on a nonrecurring basis as of March 31, 2021 ($ in thousands):


	March 31, 2021		Level 1		Level 2		Level 3
Fair value measurements on a nonrecurring basis
Impaired long-lived assets (1)	$	55,000	$	—	$	55,000	$	—

________

(1) On March 31, 2021, we recorded an impairment loss of $24.0 million based on the sale price of the Capri Resort, which we consider an observable input other than quoted prices. Refer to further discussion of the sale in Note 4.

The following tables present our fair value hierarchy for our financial liabilities not measured at fair value as of March 31, 2021 and December 31, 2020 ($ in thousands):


	Carrying Value		Fair Value
	As of March 31, 2021		Level 1		Level 2		Level 3
Financial liabilities not recorded at fair value
Term Loan	$	969,728	$	—	$	—	$	952,973

Term A1 Loan	33,879		—		—		35,433
Term A2 Loan	30,008		—		—		31,383
Term A3 Loan	27,104		—		—		27,645
Property Loan	102,073		—		—		111,985
Total liabilities	$	1,162,792	$	—	$	—	$	1,159,419


	Carrying Value		Fair Value
	As of December 31, 2020		Level 1		Level 2		Level 3
Financial liabilities not recorded at fair value
Term Loan	$	971,920	$	—	$	—	$	936,799
Revolving Credit Facility	84,667		—		—		84,769
Term A1 Loan	33,792		—		—		35,182
Term A2 Loan	29,930		—		—		31,161
Term A3 Loan	27,033		—		—		28,028
Property Loan	101,631		—		—		109,871
Total liabilities	$	1,248,973	$	—	$	—	$	1,225,810

The following table summarizes the valuation techniques used to estimate the fair value of our financial instruments measured at fair value on a recurring basis and our financial instruments not measured at fair value:


						Valuation Technique
Financial instruments recorded at fair value
Interest rate swaps						The fair value of the interest rate swaps is estimated based on the expected future cash flows by incorporating the notional amount of the swaps, the contractual period to maturity, and observable market-based inputs, including interest rate curves. The fair value also incorporates credit valuation adjustments to appropriately reflect nonperformance risk. The fair value of our interest rate swaps is largely dependent on forecasted LIBOR as of the measurement date. If, in subsequent periods, forecasted LIBOR exceeds 2.85% we will recognize a gain and future cash inflows. Conversely, if forecasted LIBOR falls below 2.85% in subsequent periods we will recognize a loss and future cash outflows.
Financial instruments not recorded at fair value
Term Loans and Property Loan						The fair value of our Term Loans and Property Loan are estimated using cash flow projections over the remaining contractual period by applying market forward rates and discounting back at the appropriate discount rate.
Revolving Credit Facility						The valuation technique of our Revolving Credit Facility is consistent with our Term Loans. The fair value of the Revolving Credit Facility generally approximates its carrying value as the expected term is significantly shorter in duration.

- 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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