Fair Value Measurements

9 Months Ended

Sep. 30, 2020

The following fair value hierarchy table categorizes information regarding our financial assets and liabilities measured at fair value on a recurring basis (in millions):


	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
As of September 30, 2020
Supplemental executive retirement plan assets	$	21.9	$	—	$	—	$	21.9
Total financial assets	21.9		—		—		21.9


As of December 31, 2019
Supplemental executive retirement plan assets	$	26.0	$	—	$	—	$	26.0
Derivatives, net	—		5.4		—		5.4
Total financial assets	$	26.0	$	5.4	$	—	$	31.4

Supplemental Executive Retirement Plan Assets

Our Valaris supplemental executive retirement plans (the "SERP") are non-qualified plans that provided eligible employees an opportunity to defer a portion of their compensation for use after retirement. The SERPs were frozen to the entry of new participants in November 2019 and to future compensation deferrals as of January 1, 2020. Assets held in a rabbi trust maintained for the SERP are marketable securities measured at fair value on a recurring basis using Level 1 inputs and were included in other assets, net, on our consolidated balance sheets as of September 30, 2020 and December 31, 2019. The fair value measurements of assets held in the SERP were based on quoted market prices.

Derivatives

As of September 30, 2020, we had no derivative contracts outstanding See "Note 9 - Derivative Instruments" for additional information on the Chapter 11 Cases impact to our derivatives. Our derivatives were measured at fair value on a recurring basis using Level 2 inputs. See "Note 9 - Derivative Instruments" for additional information on our derivatives, including a description of our foreign currency hedging activities and related methodologies used to manage foreign currency exchange rate risk. The fair value measurements of our prior derivatives were based on market prices that are generally observable for similar assets or liabilities at commonly quoted intervals.

Other Financial Instruments

The carrying values and estimated fair values of our debt instruments were as follows (in millions):


	Subject to Compromise (1)
	September 30, 2020				December 31, 2019
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
6.875% Senior notes due 2020	$	122.9	$	8.7	$	124.8	$	117.3
4.70% Senior notes due 2021	100.7		4.6		113.2		95.5
4.875% Senior notes due 2022	620.8		37.2		599.2		460.5
3.00% Exchangeable senior notes due 2024(2)	849.5		110.4		699.0		607.4
4.50% Senior notes due 2024	303.4		13.1		302.0		167.2
4.75% Senior notes due 2024	318.6		19.5		276.5		201.4
8.00% Senior notes due 2024	292.3		14.0		295.7		181.7
5.20% Senior notes due 2025	333.7		15.4		331.7		186.7
7.375% Senior notes due 2025	360.8		29.8		329.2		218.6
7.75% Senior notes due 2026	1,000.0		49.4		987.1		575.1
7.20% Debentures due 2027	112.1		12.9		111.7		70.0
7.875% Senior notes due 2040	300.0		17.3		373.3		153.5
5.40% Senior notes due 2042	400.0		32.0		262.8		194.4
5.75% Senior notes due 2044	1,000.5		53.0		973.3		450.0
5.85% Senior notes due 2044	400.0		25.1		268.8		194.8
Amounts borrowed under revolving credit facility(3)	581.0		581.0		—		—
Total debt	$	7,096.3	$	1,023.4	$	6,048.3	$	3,874.1

(1) The Commencement of the Chapter 11 Cases on August 19, 2020, constituted an event of default under our Senior Notes and revolving credit facility. Any efforts to enforce payment obligations under the Senior Notes and revolving credit facility, including any rights to require the repurchase by the Company of the 2024 Convertible Notes (as defined below) upon the NYSE delisting of the Class A ordinary shares, are automatically stayed as a result of the filing of the Chapter 11 Cases. The carrying amounts above represent the aggregate principal amount of Senior Notes outstanding as well as outstanding borrowings under our revolving credit facility as of the Petition Date and are classified as Liabilities Subject to Compromise in our Condensed Consolidated Balance Sheet as of September 30, 2020. We discontinued accruing interest on our indebtedness following the Petition Date and all accrued interest as of the Petition Date is classified as Liabilities Subject to Compromise in our Condensed Consolidated Balance Sheet as of September 30, 2020. Additionally, we incurred a net non-cash charge of $447.9 million to write off any unamortized debt discounts, premiums and issuance costs, including the amounts related to the 2024 Convertible Notes discussed below, which is included in Reorganization Items, net on our Condensed Consolidated Statement

of Operations for the three and nine months ended September 30, 2020. See "Note 2 - Chapter 11 Proceedings and Ability to Continue as a Going Concern" for additional information.

(2) Our 2024 Convertible Notes are exchangeable into cash, our Class A ordinary shares or a combination thereof. The 2024 Convertible Notes were separated, at issuance, into their liability and equity components on our Condensed Consolidated Balance Sheet. The equity component was initially recorded to additional paid-in capital and as a debt discount and the discount was being amortized to interest expense over the life of the instrument. As discussed above, the carrying amount at September 30, 2020 represents the aggregate principal amount of these notes as of the Petition Date and are classified as Liabilities Subject to Compromise in our Condensed Consolidated Balance Sheet as of September 30, 2020. We discontinued accruing interest on these notes as of the Petition Date. Additionally, we incurred a net non-cash charge of $128.8 million to write off $119.5 million of unamortized debt discount and $9.3 million of unamortized debt issuance costs related to these notes, which is included in Reorganization Items, net on our Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2020. The equity component is $220.0 million at September 30, 2020 and remains in Additional Paid-Capital.

(3) In addition to the amount borrowed above, we had $41.2 million in undrawn letters of credit issued under the revolving credit facility.

While the revolving credit facility has not been terminated, no further borrowings are permitted. As discussed above, the carrying amount at September 30, 2020 represents the outstanding borrowings as of the Petition Date and are classified as Liabilities Subject to Compromise in our Condensed Consolidated Balance Sheet as of September 30, 2020. We discontinued accruing interest on the revolving credit facility as of the Petition Date and wrote off any unamortized debt issuance costs.

The estimated fair values of our senior notes and debentures were determined using quoted market prices, which are level 1 inputs. The estimated fair values of our cash and cash equivalents, accounts receivable, notes receivable, trade payables and other liabilities approximated their carrying values as of September 30, 2020 and December 31, 2019.

- 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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