Quarterly report pursuant to Section 13 or 15(d)

Fair Value

v3.7.0.1
Fair Value
6 Months Ended
Jun. 30, 2017
Fair Value Disclosures [Abstract]  
FAIR VALUE
FAIR VALUE
The following tables set forth the Company's assets and liabilities measured at fair value on a recurring basis, by level within the fair value hierarchy, as of June 30, 2017 and December 31, 2016.
 
June 30, 2017
 
 
 
Fair Value
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Other equity securities
$
9,147,158

 
$

 
$

 
$
9,147,158

Interest Rate Swap Derivative
43,777

 

 
43,777

 

Total Assets
$
9,190,935

 
$

 
$
43,777

 
$
9,147,158

 
December 31, 2016
 
 
 
Fair Value
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Other equity securities
$
9,287,209

 
$

 
$

 
$
9,287,209

Interest Rate Swap Derivative
19,950

 

 
19,950

 

Total Assets
$
9,307,159

 
$

 
$
19,950

 
$
9,287,209

At June 30, 2017, the only assets and liabilities measured at fair value on a recurring basis were the Company's derivatives and its equity securities. On March 30, 2016, the Company terminated one of the cash flow hedges with a notional amount of $26.3 million concurrent with the assignment of the Pinedale Credit Facility. The remaining cash flow hedge was de-designated from hedge accounting as of March 30, 2016, and continues to be valued using a consistent methodology and therefore is classified as a Level 2 measurement. Subsequent to de-designation, changes in the fair value are recognized in earnings in the period in which the changes occur.
The valuation of the interest rate swaps are determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including forward interest rate curves. The inputs used to value the derivatives fall primarily within Level 2 of the value hierarchy.
The changes for all Level 3 securities measured at fair value on a recurring basis using significant unobservable inputs for the six months ended June 30, 2017 and 2016 are as follows:
Level 3 Rollforward
For the Six Months Ended June 30, 2017
 
Fair Value Beginning Balance
 
Acquisitions
 
Disposals
 
Total Realized and Unrealized Gains/(Losses) Included in Net Income
 
Return of Capital Adjustments Impacting Cost Basis of Securities
 
Fair Value Ending Balance
 
Changes in Unrealized Losses, Included In Net Income, Relating to Securities Still Held (1)
Other equity securities
 
$
9,287,209

 
$

 
$

 
$
70,426

 
$
(210,477
)
 
$
9,147,158

 
$
70,426

Total
 
$
9,287,209

 
$

 
$

 
$
70,426

 
$
(210,477
)
 
$
9,147,158

 
$
70,426

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Six Months Ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other equity securities
 
$
8,393,683

 
$

 
$

 
$
(472,416
)
 
$
114,869

 
$
8,036,136

 
$
(472,416
)
Total
 
$
8,393,683

 
$

 
$

 
$
(472,416
)
 
$
114,869

 
$
8,036,136

 
$
(472,416
)
(1) Located in Net realized and unrealized gain on other equity securities in the Consolidated Statements of Income

The Company utilizes the beginning of reporting period method for determining transfers between levels. There were no transfers between levels 1, 2 or 3 for the six months ended June 30, 2017 and 2016.
Valuation Techniques and Unobservable Inputs
The Company’s other equity securities, which represent securities issued by private companies, are classified as Level 3 assets and the Company has elected to report at fair value under the fair value option. Significant judgment is required in selecting the assumptions used to determine the fair values of these investments.
As of June 30, 2017 and December 31, 2016, the Company’s investment in Lightfoot is its only remaining significant private company investment. Lightfoot, in turn, owns a combination of public and private investments. Therefore, Lightfoot was valued using a combination of the following valuation techniques: (i) public share price of private companies' investments, and (ii) discounted cash flow analysis using an estimated discount rate of 15.7 percent to 17.7 percent and 15.3 percent to 17.3 percent as of June 30, 2017 and December 31, 2016, respectively. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investment may fluctuate from period to period. Additionally, the fair value of the Company’s investment may differ from the values that would have been used had a ready market existed for such investment and may differ materially from the values that the Company may ultimately realize.
As of both June 30, 2017 and December 31, 2016, the Company held a 6.6 percent and 1.5 percent equity interest in Lightfoot LP and Lightfoot GP, respectively. Lightfoot’s assets include an ownership interest in Gulf LNG, a 1.5 billion cubic feet per day ("bcf/d") receiving, storage, and regasification terminal in Pascagoula, Mississippi, and common units and subordinated units representing an approximately 40 percent aggregate limited partner interest, and a noneconomic general partner interest, in Arc Logistics Partners LP (NYSE: ARCX). The Company holds observation rights on Lightfoot's Board of Directors.
Certain condensed combined unaudited financial information of the unconsolidated affiliate, Lightfoot, is presented in the following tables:
 
June 30, 2017
 
December 31, 2016
 
(Unaudited)
 
(in thousands)
Assets
 
 
 
Current assets
$
17,787

 
$
20,412

Noncurrent assets
693,156

 
698,745

Total Assets
$
710,943

 
$
719,157

Liabilities
 
 
 
Current liabilities
$
14,902

 
$
14,718

Noncurrent liabilities
271,320

 
268,805

Total Liabilities
$
286,222

 
$
283,523

 
 
 
 
Partner's equity
424,721

 
435,634

Total liabilities and partner's equity
$
710,943

 
$
719,157


 
For the Three Months Ended
 
For the Six Months Ended
 
June 30, 2017
 
June 30, 2016
 
June 30, 2017
 
June 30, 2016
 
(Unaudited)
 
(in thousands)
Revenues
$
26,586

 
$
26,243

 
$
52,511

 
$
52,310

Operating expenses
22,803

 
20,812

 
45,274

 
42,884

Income (Loss) from Operations
$
3,783

 
$
5,431

 
$
7,237

 
$
9,426

Other income
1,860

 
2,369

 
3,770

 
4,743

Net Income
$
5,643

 
$
7,800

 
$
11,007

 
$
14,169

Less: Net Income attributable to non-controlling interests
(1,977
)
 
(5,070
)
 
(5,107
)
 
(9,077
)
Net Income attributable to Partner's Capital
$
3,666

 
$
2,730

 
$
5,900

 
$
5,092


The following section describes the valuation methodologies used by the Company for estimating fair value for financial instruments not recorded at fair value, but fair value is included for disclosure purposes only, as required under disclosure guidance related to the fair value of financial instruments.
Cash and Cash Equivalents — The carrying value of cash, amounts due from banks, federal funds sold and securities purchased under resale agreements approximates fair value.
Financing Notes Receivable — The financing notes receivable are valued on a non-recurring basis. The financing notes receivable are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Financing Notes with carrying values that are not expected to be recovered through future cash flows are written-down to their estimated net realizable value. Estimates of realizable value are determined based on unobservable inputs, including estimates of future cash flow generation and value of collateral underlying the notes.
Secured Credit Facilities — The fair value of the Company’s long-term variable-rate debt under its secured credit facilities approximates carrying value.
Unsecured Convertible Senior Notes — The fair value of the unsecured convertible senior notes is estimated using quoted market prices.
Carrying and Fair Value Amounts
 
Level within fair value hierarchy
 
June 30, 2017
 
December 31, 2016
 
 
Carrying
    Amount (1)
 
Fair Value
 
Carrying
    Amount (1)
 
Fair Value
Financial Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
Level 1
 
$
37,280,689

 
$
37,280,689

 
$
7,895,084

 
$
7,895,084

Financing notes receivable (Note 4)
Level 3
 
$
1,500,000

 
$
1,500,000

 
$
1,500,000

 
$
1,500,000

Financial Liabilities:
 
 
 
 
 
 
 
 
Secured Credit Facilities
Level 2
 
$
41,035,695

 
$
41,035,695

 
$
89,387,985

 
$
89,387,985

Unsecured convertible senior notes
Level 1
 
$
111,638,489

 
$
127,821,360

 
$
111,244,895

 
$
129,527,940

(1) The carrying value of debt balances are presented net of unamortized original issuance discount and debt issuance costs.