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13. FAIR VALUE MEASUREMENTS. | 12 Months Ended
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Dec. 31, 2011
Fair Value Disclosures [Text Block] |
13. | FAIR VALUE MEASUREMENTS.
The fair value hierarchy prioritizes the inputs used in valuation techniques into three levels as follows:
| · | Level 1 – Observable inputs – unadjusted quoted prices in active markets for identical assets and liabilities;
| · | Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data; and
| · | Level 3 – Unobservable inputs – includes amounts derived from valuation models where one or more significant inputs are unobservable. For fair value measurements using significant unobservable inputs, a description of the inputs and the information used to develop the inputs is required along with a reconciliation of Level 3 values from the prior reporting period.
Convertible Notes and 2010 Warrants – As discussed in Notes 6 and 10, the Company recorded the convertible notes and related warrants at fair value and designated them as Level 3 on their issuance date. The convertible notes were valued using a combination of a Monte Carlo Binomial Lattice-Based valuation methodology for the embedded conversion feature, adjusted for marketability restrictions, combined with a discounted cash flow model for the payment stream of the debt instrument. Significant assumptions used in the valuation at both the issuance date and December 31, 2010 are as follows:
Assumptions |  | October 6, 2010 |  | December 31, 2010
Conversion price |  | $ | 5.95 |  |  | $ | 5.95 |
Volatility |  |  | 73.7 | % |  |  | 68.4 | %
Risk free interest rate |  |  | 0.24 | % |  |  | 0.29 | %
Term (years) |  |  | 1.27 |  |  |  | 1.03 |
Marketability discount |  |  | 32.0 | % |  |  | 27.0 | %
Discount rate on plain debt |  |  | 30.0 | % |  |  | 30.0 | %
Based on the above, the Company estimated the fair value of the convertible notes to be $37,474,000 at October 6, 2010 and $38,108,000 at December 31, 2010. The Company continued estimating the fair value of the convertible notes quarterly until their retirement on November 14, 2011. The warrants were valued using a Monte Carlo Binomial Lattice-Based valuation methodology, adjusted for marketability restrictions. Significant assumptions used in the valuations for the dates noted are as follows:
Assumptions |  | October 6, 2010 |  | December 31, 2010
Strike price |  |  | $5.95 |  |  |  | $5.95 |
Volatility |  |  | 67.0 | % |  |  | 63.5 | %
Risk free interest rate |  |  | 1.77 | % |  |  | 2.71 | %
Term (years) |  |  | 7.00 |  |  |  | 6.90 |
Marketability discount |  |  | 50.4 | % |  |  | $44.4 | %
Based on the above, the Company estimated the fair value of the warrants to be $7,445,000 at October 6, 2010 and $5,718,000 at December 31, 2010. As discussed in Note 10, as a result of the Company’s private placement on December 13, 2011, the strike price of the 2010 Warrants reset. The Company estimated the fair value of the 2010 Warrants on December 13, 2011 and December 31, 2011 as follows:
Assumptions |  | December 13, 2011 |  | December 31, 2011
Strike price |  |  | $0.45 |  |  |  | $0.45 |
Volatility |  |  | 72.3 | % |  |  | 68.0 | %
Risk free interest rate |  |  | 1.13 | % |  |  | 1.09 | %
Term (years) |  |  | 5.90 |  |  |  | 5.90 |
Marketability discount |  |  | 50.2 | % |  |  | 47.4 | %
Based on the above, the Company estimated the fair value of the 2010 Warrants to be $1,394,000 at December 13, 2011 and $226,000 at December 31, 2011. The 2011 Warrants were valued using a Monte Carlo Binomial Lattice-Based valuation methodology, adjusted for marketability restrictions. Significant assumptions used in the valuations for the dates noted are as follows:
Assumptions |  | December 13, 2011 |  | December 31, 2011
Strike price |  |  | $1.50 |  |  |  | $1.50 |
Volatility |  |  | 72.3 | % |  |  | 68.0 | %
Risk free interest rate |  |  | 0.85 | % |  |  | 0.83 | %
Term (years) |  |  | 5.00 |  |  |  | 4.96 |
Marketability discount |  |  | 54.9 | % |  |  | 52.0 | %
Based on the above, the Company estimated the fair value of the 2011 Warrants to be $1,809,000 at December 13, 2011 and $1,695,000 at December 31, 2011. Interest Rate Caps and Swaps – Prior to the Effective Date, the Company classified the Plant Owners’ interest rate caps and swaps into the following levels depending on the inputs used to determine their fair values. The fair value of the interest rate caps were designated as Level 2 based on quoted prices on similar assets or liabilities in active markets. The fair values of the interest rate swaps were designated as Level 3 and were based on a combination of observable inputs and material unobservable inputs. The Plant Owners had five pay-fixed-and-receive variable interest rate swaps in liability positions which were extinguished as part of the emergence from bankruptcy. To reflect the Plant Owners’ financial condition and Chapter 11 Filings, a recovery rate of 40% was applied to that value. Management elected the 40% recovery rate in the absence of any other company-specific information. As the recovery rate is a material unobservable input, these swaps were considered Level 3. On June 29, 2010, the liability balance of $1,628,000 was removed from the Company’s consolidated financial statements as discussed in Note 7. Other Derivative Instruments – The Company’s other derivative instruments consist of commodity positions. The fair value of the commodity positions are based on quoted prices on the commodity exchanges and are designated as Level 1. The following table summarizes fair value measurements by level at December 31, 2011 (in thousands):
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | $ | 244 |  |  | $ | — |  |  | $ | — |  |  | $ | 244 |
Total Assets |  | $ | 244 |  |  | $ | — |  |  | $ | — |  |  | $ | 244 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2011 Warrants(1) |  | $ | — |  |  | $ | — |  |  | $ | 1,695 |  |  | $ | 1,695 |
2010 Warrants(1) |  |  | — |  |  |  | — |  |  |  | 226 |  |  |  | 226 |
Commodity contracts(1) |  |  | 500 |  |  |  | — |  |  |  | — |  |  |  | 500 |
Total Liabilities |  | $ | 500 |  |  | $ | — |  |  | $ | 1,921 |  |  | $ | 2,421 |
(1) Included in other liabilities in the consolidated balance sheets. The following table summarizes fair value measurements by level at December 31, 2010 (in thousands):
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Total Assets |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Convertible notes |  | $ | — |  |  | $ | — |  |  | $ | 38,108 |  |  | $ | 38,108 |
2010 Warrants(1) |  |  | — |  |  |  | — |  |  |  | 5,718 |  |  |  | 5,718 |
Commodity contracts(1) |  |  | 15 |  |  |  | — |  |  |  | — |  |  |  | 15 |
Total Liabilities |  | $ | 15 |  |  | $ | — |  |  | $ | 43,826 |  |  | $ | 43,841 |
(1) Included in other liabilities in the consolidated balance sheets. For fair value measurements using significant unobservable inputs (Level 3), a description of the inputs and the information used to develop the inputs is required along with a reconciliation of Level 3 values from the prior reporting period. The changes in the Company’s fair value of its Level 3 inputs were as follows (in thousands):
|  | Convertible Notes |  |  | 2010 Warrants |  |  | 2011 Warrants |  |  | Interest Rate Swaps |
Balance, December 31, 2009 |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (2,875 | )
Issuance of convertible notes and warrants |  |  | 37,474 |  |  |  | 7,445 |  |  |  | — |  |  |  | — |
Gain recognized in bankruptcy exit |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,628 |
Adjustments to fair value for the period |  |  | 634 |  |  |  | (1,727 | ) |  |  | — |  |  |  | 1,247 |
Balance, December 31, 2010 |  | $ | 38,108 |  |  | $ | 5,718 |  |  | $ | — |  |  |  | — |
Issuance of 2011 Warrants |  |  | — |  |  |  | — |  |  |  | 1,809 |  |  |  | — |
Repayments of convertible notes |  |  | (35,000 | ) |  |  | — |  |  |  | — |  |  |  | — |
Exercises of 2010 Warrants |  |  | — |  |  |  | (1,155 | ) |  |  | — |  |  |  | — |
Adjustments to fair value for the period |  |  | (3,108 | ) |  |  | (4,337 | ) |  |  | (114 | ) |  |  | — |
Balance, December 31, 2011 |  | $ | — |  |  | $ | 226 |  |  | $ | 1,695 |  |  | $ | — |
Reconciliation of Impact to Statements of Operations – The following reconciliation summarizes the initial amounts recognized for the issuance of the convertible notes, 2010 Warrants and 2011 Warrants and subsequent amounts that are recorded in the statements of operations as fair value adjustments (in thousands):
|  | Balance Sheet |  |  | Statements of Operations |
|  | Convertible Notes |  |  | Warrants |  |  | Fair Value Gain (Loss) |
Issuance of $35.0 million on October 6, 2010 |  | $ | 37,474 |  |  | $ | 7,445 |  |  | $ | (9,919 | )
Write-off of issuance costs |  |  | — |  |  |  | — |  |  |  | (2,910 | )
Adjustments to fair value for the period |  |  | 634 |  |  |  | (1,727 | ) |  |  | 1,093 |
As of and for year ending December 31, 2010 |  | $ | 38,108 |  |  | $ | 5,718 |  |  | $ | (11,736 | )
Issuance of 2011 Warrants |  |  | — |  |  |  | 1,809 |  |  |  | — |
Repayments of convertible notes |  |  | (35,000 | ) |  |  | — |  |  |  | — |
Exercises of 2010 Warrants |  |  | — |  |  |  | (1,155 | ) |  |  | — |
Adjustments to fair value for the period |  |  | (3,108 | ) |  |  | (4,451 | ) |  |  | (7,559 | )
As of and for year ending December 31, 2011 |  | $ | — |  |  | $ | 1,921 |  |  | $ | (7,559 | )

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. 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