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Fair Value Measurements
 9 Months Ended
Sep. 30, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
Fair Value Hierarchy—Our financial instruments measured at fair value either on a recurring or a non-recurring basis are classified in a hierarchy for disclosure purposes consisting of three levels based on the observability of inputs in the market place as discussed below:
•
Level 1: Fair value measurements that are quoted prices (unadjusted) in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets.
•
Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.
•
Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability.
Fair value of credit default swaps are obtained from a third party who publishes various information including the index composition and price data (Level 2 inputs). The fair value of credit default swaps does not contain credit-risk-related adjustments as the change in fair value is settled net through posting cash collateral or reclaiming cash collateral between us and our counterparty.
When a majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. However, when the valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and our counterparties, which we consider significant (10% or more) to the overall valuation of our derivatives, the derivative valuations in their entirety are classified in Level 3 of the fair value hierarchy. Transfers of inputs between levels are determined at the end of each reporting period. In determining the fair values of our derivatives at September 30, 2020, the LIBOR interest rate forward curve (Level 2 inputs) assumed a downtrend from 0.148% to 0.129% for the remaining term of our derivatives. Credit spreads (Level 3 inputs) used in determining the fair values derivatives assumed an uptrend in nonperformance risk for us and all of our counterparties through the maturity dates.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present our assets and liabilities measured at fair value on a recurring basis aggregated by the level within which measurements fall in the fair value hierarchy (in thousands):
 
Quoted Market Prices (Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Counterparty and Cash Collateral Netting(1)
 
Total
 
September 30, 2020
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
Credit default swaps
$
—

 
$
(323
)
 
$
—

 
$
1,100

 
$
777

 
 
$
—

 
$
(323
)
 
$
—

 
$
1,100

 
$
777

(2) 
 
Quoted Market Prices (Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Counterparty and Cash Collateral Netting(1)
 
Total
 
December 31, 2019
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives - floors
$
—

 
$
1

 
$
—

 
$
52

 
$
53

 
Interest rate derivatives - caps
—

 
1

 
—

 
—

 
1

 
Credit default swaps
—

 
(550
)
 
—

 
1,078

 
528

 
 
$
—

 
$
(548
)
 
$
—

 
$
1,130

 
$
582

(2) 
__________________
(1) 
Represents net cash collateral posted between us and our counterparties.
(2) 
Reported as “derivative assets” in our condensed consolidated balance sheets.
Effect of Fair Value Measured Assets and Liabilities on Condensed Consolidated Statements of Operations
The following table summarizes the effect of fair value measured assets and liabilities on our condensed consolidated statements of operations (in thousands):
 
Gain (Loss) Recognized in Income
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2020
 
2019
 
2020
 
2019
 
Assets
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
Interest rate derivatives - floors
$
—

 
$
(717
)
 
$
—

 
$
(51
)
 
Interest rate derivatives - caps
(30
)
 
(26
)
 
(93
)
 
(107
)
 
Credit default swaps
51

(1) 
(61
)
(1) 
226

(1) 
(1,004
)
(1) 
Total derivative assets
$
21

 
$
(804
)
 
$
133

 
$
(1,162
)
 
 
 
 
 
 


 


 
Non-derivative assets:
 
 
 
 
 
 
 
 
Investment in Ashford Inc.
$
—

 
$
(1,471
)
 
$
—

 
$
(5,390
)
 
Total
$
21

 
$
(2,275
)
 
$
133

 
$
(6,552
)
 
Total combined
 
 
 
 
 
 
 
 
Interest rate derivatives - floors
$
3,540

 
$
(667
)
 
$
3,615

 
$
139

 
Interest rate derivatives - caps
(30
)
 
(26
)
 
(93
)
 
(107
)
 
Credit default swaps
51

 
(61
)
 
226

 
(1,004
)
 
Unrealized gain (loss) on derivatives
3,561

 
(754
)
 
3,748

 
(972
)
 
Realized gain (loss) on interest rate floors
(3,540
)
(2) 
(50
)
(2) 
(3,615
)
(2) 
(190
)
(2) 
Unrealized gain (loss) on investment in Ashford Inc.
—

 
(1,471
)
 
—

 
(5,390
)
 
Net
$
21

 
$
(2,275
)
 
$
133

 
$
(6,552
)
 
_______________
(1) 
Excludes costs associated with credit default swaps of $64 for each of the three months ended September 30, 2020 and 2019, as well as $191 and $190 for the nine months ended September 30, 2020 and 2019, respectively, which is included in “other income (expense)” in our condensed consolidated statements of operations.
(2) 
Included in “other income (expense)” in our condensed consolidated statements of operations.