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Fair Value of Financial Instruments and Derivative Instruments
 12 Months Ended
Dec. 31, 2016
Notes To Consolidated Financial Statements  
Fair Value of Financial Instruments and Derivative Instruments

13. Fair Value of Financial Instruments and Derivatives Instruments

Cash and cash equivalents and restricted cash, over-the-counter foreign exchange forward contracts and interest rate derivatives are recorded at fair value. The carrying values of the current financial assets and current financial liabilities are reasonable estimates of their fair value due to the short-term nature of these financial instruments. Cash and cash equivalents and restricted cash are considered Level 1 items as they represent liquid assets with short-term maturities. The fair values of the variable interest long-term debt approximate the recorded values, due to their variable interest rates. The fair value of the fixed interest long-term debt is estimated using prevailing market rates as of the period end. We believe the terms of our loans are similar to those that could be procured as of December 31, 2016. The fair values of the long-term debt are disclosed in Note 7.

Derivative instruments

The Company enters into interest rate swap transactions to manage interest costs and the risk associated with changing interest rates with respect to its variable interest rate loans and credit facilities. The Company, from time to time, may also enter into foreign exchange forward contracts to create economic hedges for its exposure to currency exchange risk on payments relating to acquisition of vessels and on certain loan obligations or for trading purposes. Foreign exchange forward contracts are agreements entered into with a bank to exchange, at a specified future date, currencies of different countries at a specific rate. As of December 31, 2015 and 2016, the Company had no outstanding derivative instruments relating to currency exchange contracts.

The Company's interest rate swaps did not qualify for hedge accounting. The Company determines the fair market value of the interest rate swaps at the end of every period and accordingly records the resulting unrealized loss/gain during the period in the consolidated statement of operations. Information on the location and amounts of derivative fair values in the consolidated balance sheets and derivative gains/losses in the consolidated statements of operations are shown below:

 

Derivatives not designated as hedging instruments        
    Asset Derivatives Liability Derivatives
Fair ValuesFair Values
Type of Contract Balance sheet location December 31, December 31, December 31, December 31,
2015201620152016
Interest Rate  Derivative assets /Non-current assets  $181 $88 $— $—
               
Interest Rate  Derivative liabilities / Current liabilities   —  —  318  17
               
Interest Rate  Derivative liabilities / Non-current liabilities   —  —  360  157
               
  Total Derivatives  $181 $88 $678 $174

  Amount of Loss Recognized on Derivatives
  Year ended December 31,
  2015 2016
Interest Rate Contracts  $ (1,676) $ (620)
Net Loss Recognized  $ (1,676) $ (620)

The gain or loss is recognized in the consolidated statement of operations and is presented in Other (Expense)/Income – Loss on derivatives.

The Company's interest rate derivative instruments are pay-fixed, receive-variable interest rate swaps based on the USD LIBOR swap rate. The fair value of the interest rate swaps is determined using a discounted cash flow approach based on market-based LIBOR swap yield curves and take into account the credit risk of the financial institutions that are counterparties in the interest rate swaps. 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 following table summarizes the valuation of the Company's financial instruments as of December 31, 2015 and 2016.

 

         
  Significant Other Observable Inputs  
(Level 2) 
  December 31,  
  2015 2016  
Derivative instruments – asset position  $181 $88  
Derivative instruments – liability position   678  174  

As of December 31, 2015 and 2016, no fair value measurements for assets or liabilities under Level 3 were recognized in the Company's consolidated balance sheet.

Interest Rate Derivatives

Details of interest rate swap transactions entered into with certain banks in respect of certain loans and credit facilities as of December 31, 2015 and 2016 are presented in the table below:

        Notional amount
Loan or Credit Inception Expiry Fixed December 31, December 31,
Facility (1)Rate20152016
Pelea  December 15, 2011 December 14, 2016  2.0500%  28,122   -
Maxdekatria  September 28, 2012 September 28, 2017  0.9000%  18,400  16,800
Marindou  January 14, 2013 January 16, 2018  1.6000%  24,321  21,215
Petra  January 18, 2013 January 18, 2018  0.9800%  14,000  14,000
Marinouki March 05, 2013 March 05, 2018  1.4800%  20,789  19,035
Pemer  June 07, 2013 March 07, 2018  0.9475%  14,000  14,000
Avstes  July 18, 2013 April 18, 2018  1.3500%  14,000  14,000
Shikoku  August 28, 2013 August 28, 2018  1.2500%  14,933  13,067
              
Total         $148,565 $112,117

(1)       Under all above swap transactions, the bank effects quarterly floating-rate payments to the Company for the relevant amount based on the three-month USD LIBOR, and the Company effects quarterly payments to the bank on the relevant amount at the respective fixed rates.

The notional amounts of the above transactions are reduced during the term of the swap transactions based on the expected principal outstanding under the respective facility.

 

Asset Measured at Fair Value on a Non-recurring Basis

Assets held for sale:

As discussed in Notes 4 and 6, the vessels Stalo and Kypros Unity, classified as assets held for sale as of December 31, 2015, were measured at the lower of their carrying amount or fair value less the cost to sell. Details of the impairment charge for each vessel are noted in the table below.

     
  Significant Other Observable Inputs (Level 2) Loss
   
   December 31, 2015  December 31, 2015
     
M/V Stalo $10,000 $7,185
M/V Kypros Unity  21,750  5,714
Total $31,750 $12,899

 

The fair value of each vessel was based on the Company's best estimate of the fair value of each vessel on a charter free basis, and were supported by vessel valuations obtained from independent third party shipbrokers as of December 31, 2015, which were mainly based on recent sales and purchase transactions of similar vessels. No assets were classified as assets held for sale as of December 31, 2016.

Liability directly associated with assets held for sale:

The fair value of the liability directly associated with assets held for sale of $16,724 as of December 31, 2015, relates to the long-term debt, net of deferred financing costs, of vessel Kypros Unity, which approximated its carrying value, predominantly due to the variable interest rate. This long-term debt was considered Level 2 item in accordance with the fair value hierarchy.