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Financial Instruments and Fair Value Disclosures | 9 Months Ended
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Dec. 31, 2019
Financial Instruments and Fair Value Disclosures |
Financial Instruments and Fair Value Disclosures | 10. Financial Instruments and Fair Value Disclosures Our principal financial assets consist of cash and cash equivalents, restricted cash amounts due from related parties, trade accounts receivable and derivative instruments. 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, cash and cash equivalents, and restricted cash. 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 the London Interbank Offered Rate (“LIBOR”) 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 2015 Debt Facility. Refer to Note 18 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2019 for information on our interest rate swap agreements related to the 2015 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 LIBOR swap yield rates. LIBOR 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.
Additionally, we have taken positions in freight forward agreements (“FFAs”) as economic hedges to reduce the risk related to vessels trading in the spot market and to take advantage of fluctuations in market prices. Customary requirements for trading FFAs include the maintenance of initial and variation margins based on expected volatility, open position and mark-to-market of the contracts. FFAs are recorded as assets/liabilities until they are settled. Changes in fair value prior to settlement are recorded in unrealized gain/(loss) on derivatives. Upon settlement, if the contracted charter rate is less than the average of the rates for the specified route and time period, as reported by an identified index, the seller of the FFA is required to pay the buyer the settlement sum, being an amount equal to the difference between the contracted rate and the settlement rate, multiplied by the number of days in the specified period covered by the FFA. Conversely, if the contracted rate is greater than the settlement rate, the buyer is required to pay the seller the settlement sum. Settlement of FFAs are recorded in realized gain/(loss) on derivatives. FFAs are considered Level 2 items in accordance with the fair value hierarchy. 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:
|  |  | December 31, 2019 |  |  | March 31, 2019 |
|  | Current assets |  | Current liabilities |  | Current assets |  | Current liabilities |
Derivatives not designated as hedging instruments |  | Derivative instruments |  | Derivative instruments |  | Derivative instruments |  | Derivative instruments |
Forward freight agreements |  |  | 1,590,000 |  |  | — |  |  | — |  |  | — |
|  |  | December 31, 2019 |  |  | March 31, 2019 |
|  | 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 |  | $ | 1,033,323 |  | $ | 1,466,329 |  | $ | 6,448,498 |  | $ | — |
The effect of derivative instruments within the unaudited interim condensed consolidated statements of operations included herein for the periods presented is as follows:
|  |  |  | Three months ended |
Derivatives not designated as hedging instruments |  | Location of gain/(loss) recognized |  | December 31, 2019 |  | December 31, 2018 |
Forward freight agreements—change in fair value |  | Unrealized gain/(loss) on derivatives |  | $ | 645,000 |  | $ | — |
Interest rate swap—change in fair value |  | Unrealized gain/(loss) on derivatives |  |  | 801,395 |  |  | (6,669,266) |
Interest rate swap—realized gain/(loss) |  | Realized gain on derivatives |  |  | 449,276 |  |  | 881,276 |
Gain/(loss) on derivatives, net |  |  |  | $ | 1,895,671 |  | $ | (5,787,990) |
|  |  |  | Nine months ended |
Derivatives not designated as hedging instruments |  | Location of gain/(loss) recognized |  | December 31, 2019 |  | December 31, 2018 |
Forward freight agreements—change in fair value |  | Unrealized gain/(loss) on derivatives |  | $ | 1,590,000 |  | $ | — |
Interest rate swap—change in fair value |  | Unrealized gain/(loss) on derivatives |  |  | (6,881,504) |  |  | (3,910,190) |
Interest rate swap—realized gain/(loss) |  | Realized gain on derivatives |  |  | 2,191,417 |  |  | 2,494,832 |
Gain/(loss) on derivatives, net |  |  |  | $ | (3,100,087) |  | $ | (1,415,358) |
As of December 31, 2019 and March 31, 2019, no fair value measurements for assets or liabilities under Level 1 or Level 3 were recognized in the accompanying consolidated balance sheets with the exception of cash and cash equivalents, restricted cash, and 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, 2019 and 2018.
| (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 securities that are included in other current assets in 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 securities are considered Level 1 items. We have long-term bank debt for which we believe the carrying value approximates their fair value as the loans bear interest at variable interest rates, being LIBOR, which is observable at commonly quoted intervals for the full terms of the loans, and hence are considered as Level 2 items in accordance with the fair value hierarchy. We also have long-term debt related to the Corsair Japanese Financing, Concorde Japanese Financing, Corvette Japanese Financing, CJNP Japanese Financing, CMNL Japanese Financing, and CNML Japanese Financing (collectively the “Japanese Financings”) that incur interest at a fixed-rate with the initial principal amount amortized to the purchase obligation price of each vessel. The Japanese Financings 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 the Japanese Financings as of:
|  | December 31, 2019 |  |  | March 31, 2019 |
|  | Carrying Value |  | Fair Value |  |  | Carrying Value |  | Fair Value |
Corsair Japanese Financing |  | $ | 44,958,333 |  | $ | 47,063,504 |  |  | $ | 47,395,833 |  | $ | 45,901,900 |
Concorde Japanese Financing |  |  | 49,538,462 |  |  | 52,040,924 |  |  |  | 51,961,538 |  |  | 50,176,288 |
Corvette Japanese Financing |  |  | 50,076,923 |  |  | 52,630,327 |  |  |  | 52,500,000 |  |  | 50,671,689 |
CJNP Japanese Financing |  |  | 19,420,625 |  |  | 20,712,784 |  |  |  | 20,506,250 |  |  | 20,918,881 |
CMNL Japanese Financing |  |  | 18,418,899 |  |  | 19,843,518 |  |  |  | 19,446,131 |  |  | 19,862,056 |
CNML Japanese Financing |  |  | 20,612,351 |  |  | 22,236,801 |  |  |  | 21,666,369 |  |  | 22,137,090 |

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- Definition The entire disclosure for financial instruments. This disclosure includes, but is not limited to, fair value measurements of short and long term marketable securities, international currencies forward contracts, and auction rate securities. Financial instruments may include hedging and non-hedging currency exchange instruments, derivatives, securitizations and securities available for sale at fair value. Also included are investment results, realized and unrealized gains and losses as well as impairments and risk management disclosures. + References No definition available. + Details
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