Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2019

Fair value represents the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses the following fair value hierarchy when selecting inputs for its valuation techniques, with the highest priority given to Level 1:


•	Level 1—quoted prices (unadjusted) in active markets for identical assets or liabilities;


•	Level 2—inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and


•	Level 3—unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

Fair Value of Debt

The Company does not measure debt, net of unamortized debt costs, at fair value in its consolidated balance sheets. The fair value was measured using Level 2 inputs and the carrying value and fair value are summarized in the following table (in thousands):



	March 31, 2019		December 31, 2018
Liabilities
Total debt - carrying value ⁽¹⁾	$	7,427,632	$	7,595,922
Total debt - fair value	$	7,466,058	$	7,559,063


(1)	Excludes unamortized debt costs of $43.7 million and $44.9 million, purchase price debt adjustments of $14.3 million and $16.3 million, and unamortized debt discounts of $5.0 million and $5.3 million as of March 31, 2019 and December 31, 2018, respectively.

Fair Value of Equipment Held for Sale

The Company’s equipment held for sale fair value is measured using Level 2 inputs and is based on recent sales prices and other factors. Equipment held for sale is recorded at the lower of fair value or carrying value and an impairment charge is recorded when the carrying value of the asset exceeds its fair value. The following table summarizes the portion of the Company’s equipment held for sale measured at fair value and the cumulative impairment charges recorded to net gain on sale of leasing equipment through the periods summarized below (in thousands):



	March 31, 2019			December 31, 2018
Assets
Equipment held for sale - assets at fair value ⁽¹⁾	$	8,429		$	5,750
Cumulative impairment charges ⁽²⁾	$	(2,501	)	$	(1,846	)


(1)	Represents the fair value of containers included in equipment held for sale in the consolidated balance sheets that have been impaired to write down the carrying value of the containers to their estimated fair value less costs to sell.


(2)	Represents the cumulative impairment charges recognized on equipment held for sale from the date of designated held for sale status to the indicated period end date.

The Company recognized net impairment charges of $1.4 million and $0.9 million for the three months ended March 31, 2019 and 2018, respectively.

Fair Value of Derivative Instruments

The Company has elected to use the income approach to value its interest rate swap agreements, using Level 2 market expectations at the measurement date and standard valuation techniques to convert future amounts to a single present amount (discounted). The Level 2 inputs for the interest rate swap and cap valuations are inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR and swap rates, basis swap adjustments and credit risk at commonly quoted intervals).

The Company presents the gross assets and liabilities of its derivative financial instruments on the consolidated balance sheet. Any amounts of cash collateral received or posted related to derivative instruments are included in Other Assets on the consolidated balance sheet and are presented in operating activities of the consolidated statements of cash flows. As of March 31, 2019, the Company had posted $1.3 million as cash collateral related to interest rate swap contracts.

The fair value of derivative instruments on the Company's consolidated balance sheets as of March 31, 2019 and December 31, 2018 was as follows (in thousands):



	Asset Derivatives				Liability Derivatives
Derivative Instrument	March 31, 2019		December 31, 2018			March 31, 2019		December 31, 2018
Interest rate swap contracts, designated	$	2,173	$	10,531		$	19,487	$	10,966
Interest rate swap contracts, not designated	2,407		3,392			—		—
Total derivatives	$	4,580	$	13,923		$	19,487	$	10,966

Fair Value of Other Assets and Liabilities

Cash and cash equivalents, restricted cash, accounts receivable, equipment purchases payable and accounts payable carrying amounts approximate fair values because of the short-term nature of these instruments. The Company’s other financial and non-financial assets, which include leasing equipment, net investment in finance leases, intangible assets and goodwill, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required, and the Company determines that these other financial and non-financial assets are impaired after completing an evaluation, these assets would be written down to their fair value.

- 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.

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