15. FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS REPORTING

Fair Value Measurements

The Company follows fair value measurement authoritative accounting guidance for all assets and liabilities measured at fair value. That authoritative accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. Market or observable inputs are the preferred sources of values, followed by assumptions based on hypothetical transactions in the absence of market inputs. The fair value hierarchy for grouping these assets and liabilities is based on the significance level of the following inputs:

Level 1 – quoted prices in active markets for identical assets or liabilities

Level 2 – quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose inputs are observable or whose significant value drivers are observable

Level 3 – significant inputs to the valuation model are unobservable

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The Company reflects transfers between the three levels at the beginning of the reporting period in which the availability of observable inputs no longer justifies classification in the original level. There were no transfers between the three levels for the year ended December 31, 2019.

Recurring Fair Value Measurements

The estimated fair value and basis of valuation of the Company’s financial liabilities that are measured at fair value on a recurring basis were as follows:


	December 31, 2018
Amounts in thousands	Level 1		Level 2		Level 3
Interest rate swap asset (1)	$	—	$	169	$	—

(1)

See “Derivative Instruments Reporting” below for detailed information regarding the Company’s interest rate swap agreements.

The Company determined the fair value of its interest rate swap agreements based on the notional amount of the swaps and the forward rate CAD-CDOR curve provided by Bloomberg and zero-coupon Canadian spot rates as of the valuation date. The Company classified these instruments as Level 2 because the inputs into the valuation model could be corroborated utilizing observable benchmark market rates at commonly quoted intervals. The interest rate swap agreements ended in December 2019 when the Company’s BMO Credit Agreement was repaid.

Nonrecurring Fair Value Measurements

The Company applies the provisions of the fair value measurement standard to its non-recurring, non-financial assets and liabilities measured at fair value. During 2019, the Company wrote down the casino license, leasehold improvements and other assets at CCB based on the losses incurred by the casino since operations began and future forecasts of continued losses due to the current regulatory environment for casinos in England and, as a result, charged $16.5 million to impairment – intangible and tangible assets on its consolidated statement of (loss) earnings for the year ended December 31, 2019. During 2017, the Company transferred the LIM Center casino license at Casinos Poland to the Hilton Warsaw Hotel and, as a result, charged $0.1 million related to LIM Center leasehold improvements to operating costs and expenses during the year ended December 31, 2017. The Company classified these impairments as Level 3 because inputs into the valuation model were based on unobservable market information.

The Company applied the acquisition method of accounting for the Acquisition. Identifiable assets and liabilities assumed were recognized and measured at the fair value as of the acquisition date. The valuation of intangible assets was determined using an income approach methodology. The Company’s key assumptions include projected future revenues, customer attrition rates and discount rates. See Note 3 for more information about the Acquisition and accounting for the Acquisition.

Long-Term Debt – The carrying value of the Company’s Macquarie Credit Agreement approximates fair value based on the recently negotiated terms and the variable interest paid on the obligation. The carrying value of the Company’s CCB credit agreement, CPL short-term lines of credit and credit agreements approximate fair value based on the variable interest paid on the obligations. The estimated fair values of the outstanding balances under the Macquarie Credit Agreement, CCB credit agreement and CPL lines of credit and credit agreements are designated as Level 2 measurements in the fair value hierarchy based on quoted prices in active markets for similar liabilities. The fair values of the Company’s capital lease obligations approximate fair value based on the similar terms and conditions currently available to the Company in the marketplace for similar financings. The Company had a valuation of the land at CDR completed in 2017 and the fair value of CDR’s land lease was CAD 28.6 million ($22.0 million based on the exchange rate in effect on December 31, 2019). The Company will update the valuation when factors indicate a revaluation is necessary. The estimated fair values of the outstanding balances related to the Company’s capital lease obligations and CDR’s land lease are designated as Level 3 measurements based on the unobservable nature of the inputs used to evaluate such liabilities.

Other Estimated Fair Value Measurements – The estimated fair values of other assets and liabilities, such as cash and cash equivalents, accounts receivable, inventory, accrued payroll and accounts payable, have been determined to approximate carrying value based on the short-term nature of those financial instruments. As of December 31, 2019 and 2018, the Company had no cash equivalents.

Derivative Instruments Reporting

In April 2016, the Company began using interest rate swaps to mitigate the risk of variable interest rates under its BMO Credit Agreement. The interest rate swaps were repaid in December 2019 when the BMO Credit Agreement was repaid. The interest rate swaps were not designated as accounting hedges. These interest rate swaps reset monthly, and the difference to be paid or received under the terms of the interest rate swap agreements is accrued as interest rates change and recognized as an adjustment to interest expense for the related debt.

Changes in the variable interest rates to be paid or received pursuant to the terms of the interest rate swap agreements are recognized in interest expense on the Company’s consolidated statement of (loss) earnings. The location and effects of derivative instruments in the consolidated statements of earnings were as follows:



Amounts in thousands
		For the year
Derivatives not designated as	Income Statement	ended December 31,
ASC 815 hedges	Classification	2019		2018		2017
Interest Rate Swaps	Interest Expense	$	712	$	953	$	476

The location and fair value amounts of the Company’s derivative instruments in the consolidated balance sheets were as follows:


Amounts in thousands		As of December 31, 2018
Derivatives not designated as ASC 815 hedges	Balance Sheet Classification	Gross Recognized Assets (Liabilities)		Gross Amounts Offset		Net Recognized Fair Value Assets (Liabilities)
Derivative assets:
Interest rate swaps - current	Other current assets	$	94	$	—	$	94
Interest rate swaps - non-current	Deposits and other		75		—		75
Total derivative assets		$	169	$	—	$	169

The interest rate swaps ended in December 2019, and there were no derivative assets on the Company’s consolidated balance sheet as of December 31, 2019.