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Note 20 - Fair Value of Financial Instruments | 9 Months Ended
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Jul. 31, 2023
Notes to Financial Statements |
Fair Value Disclosures [Text Block] |
20. | Fair Value of Financial Instruments
We use a fair-value hierarchy which prioritizes the inputs used in measuring fair value as follows:
| Level 1: | Fair value determined based on quoted prices in active markets for identical assets.
| Level 2: | Fair value determined using significant other observable inputs.
| Level 3: | Fair value determined using significant unobservable inputs.
Our financial instruments measured at fair value on a recurring basis are summarized below:
|  |  | Fair Value at |  |  | Fair Value at |
| Fair Value |  | July 31, |  |  | October 31, |
(In thousands) | Hierarchy |  | 2023 |  |  | 2022 |
Mortgage loans held for sale (1) | Level 2 |  | $ | 80,656 |  |  | $ | 110,548 |
Forward contracts | Level 2 |  |  | - |  |  |  | 752 |
Total |  | $ | 80,656 |  |  | $ | 111,300 |
(1) The aggregate unpaid principal balance was $80.0 million and $110.2 million at July 31, 2023 and October 31, 2022, respectively. We elected the fair value option for our mortgage loans held for sale. Management believes the fair value option improves financial reporting by mitigating volatility in reported earnings caused by measuring the fair value of the loans and derivative instruments used to economically hedge them without having to apply complex hedge accounting. Fair value of mortgage loans held for sale is based on independent quoted market prices, where available, or the prices for other mortgage loans with similar characteristics. The financial services segment had a pipeline of loan applications in process of $662.6 million at July 31, 2023. Loans in process for which interest rates were committed to the borrowers totaled $89.2 million as of July 31, 2023. Substantially all of these commitments were for periods of 60 days or less. Since a portion of these commitments are expected to expire without being exercised by the borrowers, the total commitments do not necessarily represent future cash requirements. The financial services segment uses investor commitments and forward sales of mandatory MBS to hedge its mortgage-related interest rate exposure. These instruments involve, to varying degrees, elements of credit and interest rate risk. Credit risk is primarily managed by entering into MBS forward commitments and option contracts. In the event of default by the purchaser, our risk is the difference between the contract price and fair value of the MBS forward commitments and option contracts. At July 31, 2023, we had no open mandatory investor commitments to sell MBS. Changes in fair value that are included in income are shown, by financial instrument and financial statement line item, below:
|  | Three Months Ended July 31, 2023 |
|  | Mortgage |  |  | Interest Rate |  |  |  |  |
|  | Loans Held |  |  | Lock |  |  | Forward |
(In thousands) |  | For Sale |  |  | Commitments |  |  | Contracts |
Change in fair value included in financial services revenue |  | $ | (64 | ) |  | $ | 8 |  |  | $ | 2 |
|  | Three Months Ended July 31, 2022 |
|  | Mortgage |  |  | Interest Rate |  |  |  |  |
|  | Loans Held |  |  | Lock |  |  | Forward |
(In thousands) |  | For Sale |  |  | Commitments |  |  | Contracts |
Change in fair value included in financial services revenue |  | $ | 36 |  |  | $ | 364 |  |  | $ | (781 | )
|  | Nine Months Ended July 31, 2023 |
|  | Mortgage |  |  | Interest Rate |  |  |  |  |
|  | Loans Held |  |  | Lock |  |  | Forward |
(In thousands) |  | For Sale |  |  | Commitments |  |  | Contracts |
Change in fair value included in financial services revenue |  | $ | 662 |  |  | $ | - |  |  | $ | - |
|  | Nine Months Ended July 31, 2022 |
|  | Mortgage |  |  | Interest Rate |  |  |  |  |
|  | Loans Held |  |  | Lock |  |  | Forward |
(In thousands) |  | For Sale |  |  | Commitments |  |  | Contracts |
Change in fair value included in financial services revenue |  | $ | 1,602 |  |  | $ | 78 |  |  | $ | (287 | )
We did not have any assets measured at fair value on a nonrecurring basis during the three and nine months ended July 31, 2023 and 2022, respectively. The fair value of our cash equivalents, restricted cash and cash equivalents and customers' deposits approximates their carrying amount, based on Level 1 inputs. The fair value of each series of our Notes and Credit Facilities are listed below. Level 2 measurements are estimated based on recent trades or quoted market prices for the same issues or based on recent trades or quoted market prices for our debt of similar security and maturity to achieve comparable yields. Level 3 measurements are estimated based on third-party broker quotes or management's estimate of the fair value based on available trades for similar debt instruments. As shown in the table below, our Senior Secured 1.75 Lien Notes, 1.125 Lien Notes, 1.25 Lien Notes, 13.5% 2026 Senior Notes, and 5.0% 2040 Senior Notes were a Level 2 measurement at July 31, 2023 due to recent trades for the same notes.
Fair Value as of July 31, 2023
(In thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Senior Secured Notes: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
10.0% Senior Secured 1.75 Lien Notes due November 15, 2025 |  |  | - |  |  |  | 162,601 |  |  |  | - |  |  |  | 162,601 |
7.75% Senior Secured 1.125 Lien Notes due February 15, 2026 |  |  | - |  |  |  | 147,887 |  |  |  | - |  |  |  | 147,887 |
10.5% Senior Secured 1.25 Lien Notes due February 15, 2026 |  |  | - |  |  |  | 287,920 |  |  |  | - |  |  |  | 287,920 |
11.25% Senior Secured 1.5 Lien Notes due February 15, 2026 |  |  | - |  |  |  | - |  |  |  | 162,569 |  |  |  | 162,569 |
Senior Notes: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
13.5% Senior Notes due February 1, 2026 |  |  | - |  |  |  | 91,949 |  |  |  | - |  |  |  | 91,949 |
5.0% Senior Notes due February 1, 2040 |  |  | - |  |  |  | 43,258 |  |  |  | - |  |  |  | 43,258 |
Senior Credit Facilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Senior Unsecured Term Loan Credit Facility due February 1, 2027 |  |  | - |  |  |  | - |  |  |  | 31,487 |  |  |  | 31,487 |
Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028 |  |  | - |  |  |  | - |  |  |  | 83,606 |  |  |  | 83,606 |
Total fair value |  | $ | - |  |  | $ | 733,615 |  |  | $ | 277,662 |  |  | $ | 1,011,277 |
Fair Value as of October 31, 2022
(In thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Senior Secured Notes: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
10.0% Senior Secured 1.75 Lien Notes due November 15, 2025 |  |  | - |  |  |  | - |  |  |  | 165,844 |  |  |  | 165,844 |
7.75% Senior Secured 1.125 Lien Notes due February 15, 2026 |  |  | - |  |  |  | - |  |  |  | 240,393 |  |  |  | 240,393 |
10.5% Senior Secured 1.25 Lien Notes due February 15, 2026 |  |  | - |  |  |  | - |  |  |  | 272,966 |  |  |  | 272,966 |
11.25% Senior Secured 1.5 Lien Notes due February 15, 2026 |  |  | - |  |  |  | - |  |  |  | 162,566 |  |  |  | 162,566 |
Senior Notes: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
13.5% Senior Notes due February 1, 2026 |  |  | - |  |  |  | - |  |  |  | 94,282 |  |  |  | 94,282 |
5.0% Senior Notes due February 1, 2040 |  |  | - |  |  |  | - |  |  |  | 55,654 |  |  |  | 55,654 |
Senior Credit Facilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Senior Unsecured Term Loan Credit Facility due February 1, 2027 |  |  | - |  |  |  | - |  |  |  | 31,301 |  |  |  | 31,301 |
Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028 |  |  | - |  |  |  | - |  |  |  | 85,247 |  |  |  | 85,247 |
Total fair value |  | $ | - |  |  | $ | - |  |  | $ | 1,108,253 |  |  | $ | 1,108,253 |
The Senior Secured Revolving Credit Facility is not included in the above tables because there were no borrowings outstanding thereunder as of July 31, 2023 and October 31, 2022.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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