Fair value measurements

12 Months Ended

Dec. 31, 2017

18. Fair Value Measurements:

The guidance for fair value measurements applies to all assets and liabilities that are being measured and reported on a fair value basis. This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The same guidance requires that assets and liabilities carried at fair value should be classified and disclosed in one of the following three categories based on the inputs used to determine its fair value:

Level 1: Quoted market prices in active markets for identical assets or liabilities;

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data;

Level 3: Unobservable inputs that are not corroborated by market data.

In addition, ASC 815, “Derivatives and Hedging” requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position.

Fair value on a recurring basis:

Interest rate swaps:

The Company enters into interest rate derivative contracts to manage interest costs and risk associated with changing interest rates with respect to its variable interest loans and credit facilities.

Interest rate swaps:

Details of the major terms of the Company's effective, as of December 31, 2017, interest rate swaps, are summarized below:

	Designed as					Notional amount
Counterparty	accounting hedge	Inception	Expiry	Fixed Rate		December 31, 2017
Goldman Sachs	No	October 1, 2014	April 1, 2018	1.7925%		93,180
Goldman Sachs	No	October 1, 2014	April 1, 2018	1.8075%		93,180
Goldman Sachs	No	October 1, 2014	April 1, 2018	2.0675%		37,272
Goldman Sachs	No	October 1, 2014	April 1, 2018	1.8450%		93,180
Goldman Sachs	No	October 1, 2014	April 1, 2018	1.8025%		55,908
HSH - Star Challenger	Yes	September 30, 2014	September 28, 2018	1.7650%		6,406
HSH - Star Fighter	Yes	September 30, 2014	September 28, 2018	1.7650%		6,562
Credit Agricole - Star Borealis	Yes	November 10, 2014	August 9, 2018	1.7200%		21,015
Credit Agricole - Star Polaris	Yes	August 11, 2014	November 9, 2018	1.7050%		22,133
Total					$	428,836

Due to (i) changes in the timing of delivery of some of the Company's newbuilding vessels and, by extension, the timing of some of the forecasted transactions, (ii) changes in LIBOR curves, and (iii) the sale of some of the Company's vessels in 2015 whose loans had been designated as hedged items, the Company determined that the “highly effective” criterion of the hedging effectiveness test for the Goldman Sachs Swaps was not satisfied for the quarter ended June 30, 2015. Consequently, the hedging relationship related to the Goldman Sachs Swaps no longer qualified for special hedge accounting, and as of April 1, 2015, the Company de-designated the cash flow hedge related to the Goldman Sachs Swaps. As a result, changes in the fair value of these swaps since the date of de-designation, April 1, 2015, were reported in earnings under “Gain / (Loss) on derivative financial instruments, net.” The amount already reported up to March 31, 2015 in “Accumulated other comprehensive income / (loss)” with respect to the corresponding swaps is reclassified to earnings when the hedged forecasted transaction impacts the Company's earnings (i.e., when the hedged loan interest is incurred), except for amounts related to loans of sold or expected to be sold vessels which are being reclassified to earnings when sale is probable, since the forecasted transaction attributable to these vessels is no longer expected to occur. The unamortized balance of “Accumulated other comprehensive income / (loss)” with respect to the corresponding swaps as of December 31, 2017 was $123, all of which is expected to be reclassified into earnings during the following 12-month period when realized.

The amount recognized in Other Comprehensive Income / (Loss) is derived from the effective portion of unrealized losses from cash flow hedges.

In relation to the above interest rate swap agreements designated as cash flow hedges and in accordance with ASC 815 “Derivatives and Hedging - Timing and Probability of the Hedged Forecasted Transaction,” the management of the Company considered the creditworthiness of its counterparties and the expectations of the forecasted transactions and determined that no events have occurred that would make the forecasted transaction not probable.

Forward Freight Agreements and Bunker Swaps:

During the years ended December 31, 2016 and 2017, the Company entered into a certain number of FFAs on the Capesize, Panamax and Supramax indexes. The results of the Company's FFAs and the valuation of the Company's open position as at December 31, 2016 and 2017 are presented in the tables below.

During the year ended December 31, 2017, the Company also entered into a certain number of bunker swaps. The results of the Company's bunker swaps and the valuation of the Company's open position as at December 31, 2017 are presented in the tables below.

The amount of Gain/ (Loss) on derivative financial instruments, forward freight agreements and bunker swaps recognized in the accompanying consolidated statements of operations are analyzed as follows:

	Year ended December 31,
		2015		2016		2017
Consolidated Statement of Operations
Gain/(loss) on derivative financial instruments, net
Unrealized gain/(loss) from the Goldman Sachs Swaps after de-designation of accounting hedging relationship (April 1, 2015)	$	3,443	$	2,974	$	2,802
Realized gain/(loss) from the Goldman Sachs Swaps after de-designation of accounting hedging relationship (April 1, 2015)		(4,918)		(5,048)		(2,556)
Write-off of unrealized losses related to forecasted transactions which are no longer considered probable reclassified from other comprehensive income/(loss)		(1,793)		(42)		-
Ineffective portion of cash flow hedges		-		-		-
Total Gain/(loss) on derivative financial instruments, net	$	(3,268)	$	(2,116)	$	246

Interest and finance costs
Reclassification adjustments of interest rate swap loss transferred to Interest and finance costs from Other comprehensive income/(loss) (Note 8)		(2,416)		(1,252)		(852)
Total Gain/(loss) recognized	$	(2,416)	$	(1,252)	$	(852)

Gain/(loss) on forward freight agreements and bunker swaps
Realized gain/(loss) on forward freight agreements		-		370		(877)
Unrealized gain/(loss) on forward freight agreements		-		41		(24)
Unrealized gain/(loss) on bunker swaps		-		-		60
Total Gain/(loss) recognized	$	-	$	411	$	(841)

The following table summarizes the valuation of the Company's financial instruments as of December 31, 2016 and 2017, based on Level 2 observable inputs of the fair value hierarchy.

	Significant Other Observable Inputs (Level 2)
	December 31, 2016		December 31, 2017
	(not designated as cash flow hedges)	(designated as cash flow hedges)	(not designated as cash flow hedges)	(designated as cash flow hedges)
ASSETS
Forward freight agreements - asset position	$ 41	-	$ 17	-
Bunker swaps - asset position	-	-	60	-
Total	$ 41	$ -	$ 77	$ -
LIABILITIES
Forward freight agreements - liability position	$ -	-	$ -	-
Interest rate swaps - liability position	2,908	437	609	16
Total	$ 2,908	437	$ 609	16

The carrying values of temporary cash investments, restricted cash, accounts receivable and accounts payable approximate their fair value due to the short-term nature of these financial instruments. The fair value of long-term bank loans and capital bareboat leases, bearing interest at variable interest rates, approximates their recorded values as of December 31, 2017.

The 2022 Notes have a fixed rate, and their estimated fair value as of December 31, 2017, determined through Level 1 inputs of the fair value hierarchy (quoted price on NASDAQ under the ticker symbol SBLKZ), is approximately $50,640.

Fair value on a nonrecurring basis

As a result of the decline in charter rates and vessel values during the previous years and because market expectations for future rates were low and vessel values were unlikely to increase to the high levels of 2008, the Company reviewed, in 2015, 2016 and 2017 the recoverability of the carrying amount of its vessels.

As further described in Note 5, the Company recognized an impairment loss of $321,978 for the year ended December 31, 2015, of which:

(i) $17,815 relates to sold operating vessels that had been delivered to their purchasers as of December 31, 2015 or bareboat vessels that were reassigned to their owners during the year. The carrying value of these vessels was written down to the fair value as determined by reference to their agreed sale (or reassignment) prices less costs of sale.

(ii) $201,585 relates to sold operating vessels and newbuildings in 2015 or in early 2016 that had not been delivered to their purchasers as of December 31, 2015. The carrying value of these vessels was written down to the fair value as determined by reference to their agreed sale prices less costs of sale.

(iii) $102,578 relates to certain other operating vessels and newbuildings. Pursuant to its impairment analysis as at December 31, 2015, the Company estimated that these operating vessels and newbuildings would have future undiscounted projected operating cash flows to be earned over their operating life less than their carrying value. In estimating the projected cash flows for these vessels, the Company took into consideration the possibility of their sale, to the extent that attractive sale prices are attainable. The carrying value of these vessels was written down to the fair value as determined by reference to the vessel valuations of independent shipbrokers (as of mid to late December 2015).

The following table summarizes the valuation of these assets described under (ii) and (iii) above, measured at fair value on a non-recurring basis as of December 31, 2015.

	Fair Value Measurements Using
Long-lived assets held and used	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3) Impairment loss	Impairment loss
Vessels, net	$ —	$ 259,775	$ —	$ 145,631
Advances for vessels under construction	—	36,152	—	158,532
TOTAL	$ —	$ 295,927	$ —	$ 304,163

As further disclosed in Note 5, during 2016 the Company recognized an impairment loss of $18,537 related to the sale of two operating vessels and the termination of two newbuilding contracts during the year. The carrying value of the sold vessels was written down to the fair value as determined by reference to their agreed sale prices less the costs of their sale (Level 2). In addition pursuant to the Company's impairment analysis for its entire fleet, as at December 31, 2016, using the same framework that was used in the previous years, which is described in Note 2(n), the Company recognized an additional impairment loss of $10,684. The carrying value of the respective vessels was written down to the fair value as determined by reference to the vessel valuations of independent shipbrokers (as of December 31, 2016).

The table following table summarizes the valuation of these assets measured at fair value on a non-recurring basis as of December 31, 2016:

Long-lived assets held and used	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3) Impairment loss	Impairment loss
Vessels, net	$ —	$ 12,700	$ —	$ 10,684
TOTAL	$ —	$ 12,700	$ —	$ 10,684

The Company's impairment analysis as of December 31, 2017, indicated that the carrying amount of the Company's vessels, was recoverable, and therefore, the Company concluded that no impairment charge, was necessary.

- 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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