Investments in Securities and Derivative Instruments

6 Months Ended

Sep. 30, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Investments in Securities and Derivative Instruments

As part of the Company’s interest rate risk management strategy, the Company, from time to time, uses derivative instruments to minimize significant unanticipated earnings fluctuations that may arise from rising variable interest rate costs associated with existing borrowings (Air T Term Note A and Term Note D). To meet these objectives, the Company entered into interest rate swaps with notional amounts consistent with the outstanding debt to provide a fixed rate of 4.56% and 5.09%, respectively, on Term Notes A and D. The swaps mature in January 2028.

On August 31, 2021, Air T and Minnesota Bank & Trust ("MBT") refinanced Term Note A and fixed its interest rate at 3.42%. As a result of this refinancing, the Company determined that the interest rate swap on Term Note A was no longer an effective hedge. The Company will amortize the fair value of the interest-rate swap contract included in accumulated other comprehensive income (loss) associated with Term Note A at the time of de-designation into earnings over the remainder of its term. In addition, any changes in the fair value of Term Note A's swap after August 31, 2021 are recognized directly into earnings. The remaining swap contract associated with Term Note D is designated as an effective cash flow hedging instrument in accordance with ASC 815.

On January 7, 2022, Contrail completed an interest rate swap transaction with Old National Bank ("ONB") with respect to the $43.6 million loan made to Contrail in November 2020 pursuant to the Main Street Priority Loan Facility as established by the U.S. Federal Reserve ("Contrail - Term Note G"). The purpose of the floating-to-fixed interest rate swap transaction was to effectively fix the loan interest rate at 4.68%. As of February 24, 2022, this swap contract has been designated as a cash flow hedging instrument and qualified as an effective hedge in accordance with ASC 815. During the period between January 7, 2022 and February 24, 2022, the Company recorded a loss of approximately $0.1 million in the consolidated statement of income (loss) due to the changes in the fair value of the instrument prior to the designation and qualification of this instrument as an effective hedge. After it was deemed an effective hedge, the Company recorded changes in the fair value of the instrument in the consolidated statement of comprehensive income (loss).

For the swaps related to Air T Term Note D and Contrail - Term Note G, the effective portion of changes in the fair value on these instruments is recorded in other comprehensive income (loss) and is reclassified into the consolidated statement of income (loss) as interest expense in the same period in which the underlying hedged transactions affect earnings. The interest rate swaps are considered Level 2 fair value measurements. As of September 30, 2022 and March 31, 2022, the fair value of these interest-rate swap contracts was an asset of $3.0 million and $0.9 million, respectively, which is included within other assets in the condensed consolidated balance sheets. During the three and six months ended September 30, 2022, the Company recorded a gain of approximately $1.0 million and $1.4 million, net of tax, respectively. During the three and six months ended September 30, 2021, the Company recorded a gain of approximately $46.0 thousand and $57.0 thousand, net of tax, respectively. These gains are included in the condensed consolidated statement of comprehensive income (loss) for changes in the fair value of these instruments.

The Company may, from time to time, employ trading strategies designed to profit from market anomalies and opportunities it identifies. Management uses derivative financial instruments to execute those strategies, which may include options, and futures contracts. These derivative instruments are priced using publicly quoted market prices and are considered Level 1 fair value measurements. During the three and six months ended September 30, 2022, related to these derivative instruments, the Company had a gross gain aggregating to $46.0 thousand and no gross loss. During the three and six months ended September 30, 2021, the Company did not record any gain or loss related to derivative instruments.

The following table presents these derivative instruments at fair value in the condensed consolidated balance sheets as of September 30, 2022 and March 31, 2022 (in thousands):


(In thousands)	September 30, 2022		March 31, 2022
Assets:
Exchange-traded options & futures
Other current assets	$	401	$	—
Total assets	401		—
Liabilities:
Exchange-traded options & futures
Accrued Expenses and other	119		—
Total liabilities	$	119	$	—

The Company also invests in exchange-traded marketable securities and accounts for that activity in accordance with ASC 321, Investments- Equity Securities. Marketable equity securities are carried at fair value, with changes in fair market value included in the determination of net income. The fair market value of marketable equity securities is determined based on quoted market prices in active markets and are therefore, considered Level 1 fair value measurements. During the three months ended September 30, 2022, the Company had a gross unrealized gain aggregating to $43.0 thousand and a gross unrealized loss aggregating to $0.2 million. During the six months ended September 30, 2022, the Company had a gross unrealized gain aggregating to $86.0 thousand and a gross unrealized loss aggregating to $0.3 million. During the three months ended September 30, 2021, the Company had a gross unrealized gain aggregating to $0.4 million and a gross unrealized loss aggregating to $0.1 million. During the six months ended September 30, 2021, the Company had a gross unrealized gain aggregating to $0.8 million and a gross unrealized loss aggregating to $0.2 million. These unrealized gains and losses are included in other income (loss) on the condensed consolidated statement of income (loss).

The market value of the Company’s equity securities and cash held by the broker are periodically used as collateral against any outstanding margin account borrowings. As of September 30, 2022 and 2021, the Company had no outstanding borrowings under its margin account.