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Fair Value Measurements | 9 Months Ended
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Oct. 31, 2022
Fair Value Measurements |
Fair Value Measurements | (13) Fair Value Measurements FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) establishes a fair value hierarchy that prioritizes the inputs used to measure fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s estimates of assumptions that market participants would use in pricing the asset or liability. The three levels of the fair value hierarchy established by ASC 820 in order of priority are as follows:
| ● | Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
| ● | Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
| ● | Level 3: Unobservable inputs reflect the Company’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models.
The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis as of October 31, 2022 and are categorized using the fair value hierarchy (in thousands): ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Level 2 | ​ | Level 3 | ​ | ​
Description | ​ | Measurements | ​ | Measurements | ​ | Total
Asset classified interest rate swaps | ​ | $ | 5,249 | ​ | $ | — | ​ | $ | 5,249
Liability classified warrants | ​ | ​ | — | ​ | ​ | 2,119 | ​ | ​ | 2,119
Total assets and liabilities recorded at fair value | ​ | $ | 5,249 | ​ | $ | 2,119 | ​ | $ | 7,368
​ Successor Company Warrants ​ In connection with the formation of the Company and subsequent acquisitions of Software Luxembourg and Global Knowledge, warrants to purchase common stock were issued to investors, sellers of Global Knowledge and an executive of the Company. Warrants that are not subject to ASC 718, Stock Compensation and (i) contained features that could cause the warrant to be puttable to the Company for cash or (ii) had terms that prevented the conversion of the warrant from being fixed in all circumstances, are classified as a liability on the Company’s balance sheet and measured at fair value, with changes in fair value being recorded in the income statement, whereas all other warrants meet the equity scope exception and are classified as equity and not remeasured. ​ A summary of liability classified warrants is as follows (in thousands, except per share amounts): ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Underlying | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Common | ​ | Strike | ​ | Redemption | ​ | Expiration | ​ | Fair Value at
Type |  | Shares |  | Price |  | Price |  | Date |  | October 31, 2022
Private Placement Warrants – Sponsor |  | 16,300 | ​ | $ | 11.50 |  | None | ​ | 6/11/26 | ​ | $ | 2,119
​ The Company classifies certain Private Placement Warrants as liabilities in accordance with ASC Topic 815. The Company estimates the fair value of the Private Placement Warrants using a Black-Scholes option pricing model. The fair value of the Private Placement Warrants utilized Level 3 inputs as it is based on significant inputs not observable in the market. The fair value of the Private Placement Warrants classified as liabilities were estimated at October 31, 2022 using a Black-Scholes options pricing model and the following assumptions: ​
​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | October 31, 2022 | ​
Risk-free interest rates | ​ | ​ | ​ | 4.35 | %
Expected dividend yield | ​ | ​ | ​ | — |
Volatility factor | ​ | ​ | ​ | 60.0 | %
Expected lives (years) |  |  | ​ | 3.6 | ​
Value per unit | ​ | ​ | $ | 0.13 | ​
​ Predecessor Company (SLH) Warrants ​ At each relevant measurement date, the Predecessor warrants were valued using a probability-based approach that considered management’s estimate of the probability of (i) a sale of the company that met certain conditions that caused the warrants to be cancelled for no consideration, (ii) a sale of the company that did not meet certain conditions that caused the warrants to be cancelled for no consideration and (iii) warrants being held to maturity, with the last two scenarios utilizing a Black-Scholes model to estimate fair value. As a result of the Skillsoft Merger, the Predecessor warrants were terminated for no consideration on June 11, 2021. ​
​ | ​ | ​ | ​ | ​ | ​
​ |  | Total |  | (Level 3)
​ | ​ | ​ | ​ | ​ | ​
Private Placement Warrants – Sponsor | ​ | $ | 2,119 |  | 2,119
Total liabilities recorded at fair value | ​ | $ | 2,119 |  | 2,119
​ The following tables reconcile Level 3 instruments for which significant unobservable inputs were used to determine fair value: ​
​ | ​ | ​ | ​
​ | ​ | For the Three
​ | ​ | Months Ended
​ |  | October 31, 2022
Balance as of July 31, 2022 (Successor) | ​ | $ | 11,247
Unrealized gains recognized as other income |  | ​ | (9,128)
Balance as of October 31, 2022 (Successor) | ​ | $ | 2,119
​ | ​ | ​ | ​
​ | ​ | For the Nine
​ | ​ | Months Ended
​ |  | October 31, 2022
Balance as of January 31, 2022 (Successor) | ​ | $ | 28,199
Unrealized losses recognized as other income |  | ​ | (26,080)
Balance as of October 31, 2022 (Successor) | ​ | $ | 2,119
​ | ​ | ​ | ​
​ Interest Rate Swap ​ On June 17, 2022, the Company entered into two fixed-rate interest rate swap agreements to change the SOFR-based component of the interest rate on a portion of the Company’s variable rate debt to a fixed rate (the “Interest Rate Swaps”). The Interest Rate Swaps have a notional amount of $300.0 million and a maturity date of June 5, 2027. The objective of the Interest Rate Swaps is to eliminate the variability of cash flows in interest payments on the first $300.0 million of variable rate debt attributable to changes in benchmark one-month SOFR interest rates. The hedged risk is the interest rate risk exposure to changes in interest payments, attributable to changes in benchmark SOFR interest rates over the interest rate swap term. The changes in cash flows of the interest rate swap are expected to offset changes in cash flows of the variable rate debt. The Interest Rate Swaps are not designated as a cash flow hedge and changes in the fair value of the interest rate swaps are recorded in earnings each period. For the three and nine months ended October 31, 2022, the Company recognized a gain of $20.3 million and $5.2 million, respectively, attributable to the Interest Rate Swaps. ​ The inputs for determining fair value of the Interest Rate Swaps are classified as Level 2 inputs. Level 2 fair value is based on estimates using standard pricing models. These standard pricing models use inputs which are derived from or corroborated by observable market data such as interest rate yield curves, index forward curves, discount curves, and volatility surfaces. Counterparty to this derivative contract is a highly rated financial institution which we believe carries only a minimal risk of nonperformance. Other Fair Value Instruments ​ The Company currently invests excess cash balances primarily in cash deposits held at major banks. The carrying amounts of cash deposits, trade receivables, trade payables and accrued liabilities, as reported on the condensed consolidated balance sheet as of October 31, 2022, approximate their fair value because of the short maturity of those instruments. The Company considered the fair value of its external borrowings and believes their carrying values approximate fair value at October 31, 2022 based on the recent issuance of additional term loans on April 4, 2022 near par and the fact that the borrowing have variable rates.

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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 -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258 + Details
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