Note 4 - Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Fair Value Disclosures [Text Block]

NOTE 4— FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value measurement guidance clarifies that fair value is an exit price, representing the amount that would be received upon selling an asset or paid upon transferring a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the fair value measurement guidance are described below:

Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

Level 2 — Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 — Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

The following table sets forth certain fair value information at September 30, 2020 and December 31, 2019 for financial assets and liabilities measured at fair value by level within the fair value hierarchy, as well as cost or amortized cost. As required by the fair value measurement guidance, assets and liabilities are classified in their entirety based on the lowest level of inputs that is significant to the fair value measurement.

				September 30, 2020
				Fair Value
	Carrying Value at September 30, 2020			Total			Level 1		Level 2			Level 3
	(Dollars in thousands)
Assets:
Current assets:
Cash equivalents (including restricted cash accounts)	$	37,787		$	37,787		$	37,787	$	—		$	—
Derivatives:
Contingent receivable (1)		106			106			—		—			106
Currency forward contracts (2)		1,974			1,974			—		1,974			—
Liabilities:
Current liabilities:
Derivatives:
Contingent payables (1)		(3,029	)		(3,029	)		—		—			(3,029	)
Cross currency swap (3)		(2,790	)		(2,790	)		—		(2,790	)		—
	$	34,048		$	34,048		$	37,787	$	(816	)	$	(2,923	)

				December 31, 2019
				Fair Value
	Carrying Value at December 31, 2019			Total			Level 1		Level 2		Level 3
	(Dollars in thousands)
Assets
Current assets:
Cash equivalents (including restricted cash accounts)	$	28,316		$	28,316		$	28,316	$	—	$	—
Derivatives:
Contingent receivables (1)		102			102			—		—		102
Currency forward contracts (2)		362			362			—		362		—
Liabilities:
Current liabilities:
Derivatives:
Contingent payable (1)		(3,359	)		(3,359	)		—		—		(3,359	)
	$	25,421		$	25,421		$	28,316	$	362	$	(3,257	)

1. These amounts relate to contingent receivables and payables relating to acquisition of the Guadeloupe power plant, valued primarily based on unobservable inputs and are included within “Prepaid expenses and other”, “Accounts payable and accrued expenses” and “Other long-term liabilities” on September 30, 2020 and December 31, 2019 in the consolidated balance sheets with the corresponding gain or loss being recognized within "Derivatives and foreign currency transaction gains (losses)" in the condensed consolidated statements of operations and comprehensive income.

2. These amounts relate to currency forward contracts valued primarily based on observable inputs, including forward and spot prices for currencies, net of contracted rates and then multiplied by notional amounts, and are included within “Other receivables” and “Accounts payable and accrued expenses”, as applicable, on September 30, 2020 and December 31, 2019, in the condensed consolidated balance sheets with the corresponding gain or loss being recognized within “Derivatives and foreign currency transaction gains (losses)” in the consolidated statement of operations and comprehensive income.

3. These amounts relate to CCS contracts valued primarily based on the present value of the CCS future settlement prices for USD and NIS zero yield curves and the applicable exchange rate as of September 30, 2020. These amounts are included within “Other receivables”, net of $8.3 million in cash collateral deposits on September 30, 2020 in the consolidated balance sheets.

The amounts set forth in the tables above include investments in debt instruments and money market funds (which are included in cash equivalents). Those securities and deposits are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in an active market.

The following table presents the amounts of gain (loss) recognized in the consolidated statements of operations and comprehensive income on derivative instruments (in thousands):

		Amount of recognized gain (loss)				Amount of recognized gain (loss)
Derivatives not designated as hedging instruments	Location of recognized gain (loss)	Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019
Currency forward contracts (1)	Derivative and foreign currency transaction gains (losses)	$	424	$	941	$	2,949	$	2,640
Derivatives designated as cash flow hedging instruments
Cross currency swap (2)	Derivative and foreign currency transaction gains (losses)	$	758	$	—	$	758	$	—

⁽¹⁾ The foregoing currency forward transactions were not designated as hedge transactions and are marked to market with the corresponding gains or losses recognized within “Derivatives and foreign currency transaction gains (losses)”.

⁽²⁾ The foregoing cross currency swap transactions were designated as a cash flow hedge as further described under note 1 to the condensed consolidated financial statements. The changes in the CCS fair value are initially recorded in "Other comprehensive income (loss)" and a corresponding amount is reclassified out of "Accumulated other comprehensive income (loss)" to "Derivatives and foreign currency transaction gains (losses)" to offset the remeasurement of the underlying hedged transaction which also impacts the same line item in the condensed consolidated statements of operations and comprehensive income.

There were no transfers of assets or liabilities between Level 1, Level 2 and Level 3 during the nine months ended September 30, 2020.

The following table presents the effect of derivative instruments designated as cash flow hedges on the condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2020:

	Balance in Other comprehensive income (loss) beginning of period		Gain or (loss) recognized in Other comprehensive income (loss)			Amount reclassified from Other comprehensive income (loss) into earnings			Balance in Other comprehensive income (loss) end of period
Cash flow hedge:
Cross currency swap	$	—	$	(2,790	)	$	(758	)	$	(3,548	)

The estimated net amount of existing gain (loss) that is reported in "Accumulated other comprehensive income (loss)" as of September 30, 2020 that is expected to be reclassified into earnings within the next 12 months is immaterial. The maximum length of time over which the Company is hedging its exposure to the variability in future cash flow is from the transaction commencement date through June 2031.

The fair value of the Company’s long-term debt approximates its carrying amount, except for the following: 

	Fair Value				Carrying Amount
	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
	(Dollars in millions)				(Dollars in millions)
Olkaria III Loan - OPIC	$	198.7	$	202.1	$	179.2	$	192.6
Olkaria III plant 4 Loan - DEG 2		43.8		43.8		40.0		42.5
Olkaria III plant 1 Loan - DEG 3		38.7		38.8		34.9		37.1
Platanares Loan - OPIC		115.4		115.3		98.3		104.5
Amatitlan Loan		24.4		26.4		23.6		26.3
Senior Secured Notes:
OFC 2 LLC ("OFC 2")		214.3		210.9		192.3		203.0
Don A. Campbell 1 ("DAC 1")		80.8		78.5		74.5		78.2
USG Prudential - NV		32.8		30.6		27.9		28.4
USG Prudential - ID		18.1		18.6		18.5		19.6
USG DOE		45.5		45.0		38.1		40.8
Senior Unsecured Bonds		557.9		205.7		508.6		204.3
Senior Unsecured Loan		228.9		161.3		200.0		150.0
Plumstriker	19.7			21.7		19.7		21.6
Other long-term debt		16.9		16.3		17.1		17.4

The fair value of the long-term debt is determined by a valuation model, which is based on a conventional discounted cash flow methodology and utilizes assumptions of current borrowing rates. The fair value of revolving lines of credit is determined using a comparison of market-based price sources that are reflective of similar credit ratings to those of the Company.

As disclosed above under Note 1 to the condensed consolidated financial statements, the outbreak of the COVID-19 pandemic has resulted in a global economic downturn and market volatility that may have an impact on the estimated fair value of the Company's long-term debt. While interest rates on U.S. Treasury securities have declined and may continue to decline as a result of the COVID-19 pandemic, other components of the Company's borrowing rates have increased and may continue to increase as the global economic situation evolves, all of which have a direct impact on the fair value of the Company's long-term debt.

The carrying value of financial instruments such as revolving lines of credit and deposits approximates fair value.

The following table presents the fair value of financial instruments as of September 30, 2020: 

	Level 1		Level 2		Level 3		Total
	(Dollars in millions)
Olkaria III - OPIC	$	—	$	—	$	198.7	$	198.7
Olkaria III plant 4 Loan - DEG 2		—		—		43.8		43.8
Olkaria III plant 1 Loan - DEG 3		—		—		38.7		38.7
Platanares Loan - OPIC		—		—		115.4		115.4
Amatitlan Loan		—		24.4		—		24.4
Senior Secured Notes:
OFC 2 Senior Secured Notes		—		—		214.3		214.3
DAC 1 Senior Secured Notes		—		—		80.8		80.8
USG Prudential - NV		—		—		32.8		32.8
USG Prudential - ID		—		—		18.1		18.1
USG DOE		—		—		45.5		45.5
Senior Unsecured Bonds		—		—		557.9		557.9
Senior Unsecured Loan		—		—		228.9		228.9
Plumstriker		—		19.7		—		19.7
Other long-term debt		—		—		16.9		16.9
Deposits		14.8		—		—		14.8

The following table presents the fair value of financial instruments as of December 31, 2019:

	Level 1		Level 2		Level 3		Total
	(Dollars in millions)
Olkaria III Loan - OPIC	$	—	$	—	$	202.1	$	202.1
Olkaria IV - DEG 2		—		—		43.8		43.8
Olkaria IV - DEG 3		—		—		38.8		38.8
Platanares Loan - OPIC		—		—		115.3		115.3
Amatitlan Loan		—		26.4		—		26.4
Senior Secured Notes:
OFC 2 Senior Secured Notes		—		—		210.9		210.9
DAC 1 Senior Secured Notes		—		—		78.5		78.5
USG Prudential - NV		—		—		30.6		30.6
USG Prudential - ID		—		—		18.6		18.6
USG DOE		—		—		45.0		45.0
Senior Unsecured Bonds		—		—		205.7		205.7
Senior Unsecured Loan		—		—		161.3		161.3
Plumstriker		—		21.7		—		21.7
Other long-term debt		—		—		16.3		16.3
Commercial paper		—		50.0		—		50.0
Revolving lines of credit		—		40.6		—		40.6
Deposits		12.2		—		—		12.2