XML 35 R21.htm IDEA: XBRL DOCUMENT v2.3.0.15
FAIR VALUE OF FINANCIAL INSTRUMENTS
9 Months Ended
Sep. 30, 2011
FAIR VALUE OF FINANCIAL INSTRUMENTS 
FAIR VALUE OF FINANCIAL INSTRUMENTS

13 - FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The fair values of the Company’s financial instruments at September 30, 2011 and December 31, 2010 are noted below.  All carrying values either equal or approximate the instrument’s fair values with the exception of the 2010 Notes.

 

 

 

September 30,
2011

 

December 31,
2010

 

Cash and cash equivalents

 

$

291,785

 

$

270,877

 

Restricted cash

 

9,750

 

9,000

 

Investments

 

27,849

 

54,714

 

Floating rate debt

 

1,649,855

 

1,643,939

 

2010 Notes

 

89,375

 

129,531

 

Derivative instruments — liability position

 

32,927

 

43,297

 

 

The fair value of the investments is based on quoted market rates.  The fair value of the floating rate debt under the 2007 Credit Facility, $100 Million Term Loan Facility, $253 Million Term Loan Facility and the 2010 Baltic Trading Credit Facility are estimated based on current rates offered to the Company for similar debt of the same remaining maturities.  Additionally, the Company considers its creditworthiness in determining the fair value of floating rate debt under the credit facilities.  The carrying value approximates the fair market value for these floating rate loans.  The fair value of the convertible senior notes payable represents the market value of the 2010 Notes at September 30, 2011 without bifurcating the value of the conversion option.  The fair value of the interest rate swaps is the estimated amount the Company would receive to terminate the swap agreements at the reporting date, taking into account current interest rates and the creditworthiness of both the swap counterparty and the Company.  The carrying amounts of the Company’s other financial instruments at September 30, 2011 and December 31, 2010 (principally Due from charterers and Accounts payable and accrued expenses), approximate fair values because of the relatively short maturity of these instruments.

 

The Accounting Standards Codification Subtopic 820-10, “Fair Value Measurements & Disclosures” (“ASC 820-10”), 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 guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

 

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.

 

The following table summarizes the valuation of the Company’s investments and financial instruments by the above pricing levels as of the valuation dates listed:

 

 

 

September 30, 2011

 

 

 

Total

 

Quoted
market
prices in
active
markets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Investments

 

$

27,849

 

$

27,849

 

$

—

 

Derivative instruments — liability position

 

32,927

 

—

 

32,927

 

 

 

 

December 31, 2010

 

 

 

Total

 

Quoted
market
prices in
active
markets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Investments

 

$

54,714

 

$

54,714

 

$

—

 

Derivative instruments — liability position

 

43,297

 

—

 

43,297

 

 

The Company holds an investment in the capital stock of Jinhui, which is classified as a long-term investment.  The stock of Jinhui is publicly traded on the Oslo Stock Exchange and is considered a Level 1 item.

 

The Company’s interest rate derivative instruments are pay-fixed, receive-variable interest rate swaps based on LIBOR.  The Company has elected to use the income approach to value the derivatives, using observable Level 2 market inputs at measurement date and standard valuation techniques to convert future amounts to a single present amount assuming that participants are motivated, but not compelled to transact.  Level 2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts on LIBOR for the first two years) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR cash and swap rates and credit risk at commonly quoted intervals).  Mid-market pricing is used as a practical expedient for fair value measurements.  Refer to Note 11 — Interest Rate Swap Agreements for further information regarding the Company’s interest rate swap agreements.  ASC 820-10 states that the fair value measurement of an asset or liability must reflect the nonperformance risk of the entity and the counterparty. Therefore, the impact of the counterparty’s creditworthiness when in an asset position and the Company’s creditworthiness when in a liability position has also been factored into the fair value measurement of the derivative instruments in an asset or liability position and did not have a material impact on the fair value of these derivative instruments.  As of September 30, 2011, both the counterparty and the Company are expected to continue to perform under the contractual terms of the instruments.