Fair value of financial instruments

12 Months Ended

Dec. 31, 2020

Fair value of financial instruments

Fair value of financial instruments

14. Fair value of financial instruments

The estimated carrying values and fair values of our recorded financial instruments related to operations are as follows:

	December 31,
	2020				2019
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
Long-term debt, including current portion	$	487.2	$	539.0	$	560.4	$	589.5
Convertible debentures		90.3		94.6		88.5		93.0

At both December 31, 2020, and December 31, 2019, fair value of cash and cash equivalents, restricted cash, accounts receivable and accounts payable are not materially different from their carrying amounts because of the short-term nature of these instruments and/or because the stated rates approximate market rates.

Our financial instruments that are recorded at fair value have been classified into levels using a fair value hierarchy.

The three levels of the fair value hierarchy are defined below:

Level 1—Unadjusted quoted prices available in active markets for identical assets or liabilities as of the reporting date. Financial assets utilizing Level 1 inputs include active exchange-traded securities.

Level 2—Quoted prices available in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are directly observable, and inputs derived principally from market data.

Level 3—Unobservable inputs from objective sources. These inputs may be based on entity-specific inputs. Level 3 inputs include all inputs that do not meet the requirements of Level 1 or Level 2.

The following represents the recurring measurements of fair value hierarchy of our financial assets and liabilities that were recognized at fair value as of December 31, 2020 and December 31, 2019. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.

	December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	38.8	$	—	$	—	$	38.8
Restricted cash		7.1		—		—		7.1
Derivative instruments asset		—		0.4		—		0.4
Total	$	45.9	$	0.4	$	—	$	46.3
Liabilities:
Derivative instruments liability	$	—	$	17.6	$	1.5	$	19.1
Total	$	—	$	17.6	$	1.5	$	19.1

	December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	74.9	$	—	$	—	$	74.9
Restricted cash		7.7		—		—		7.7
Derivative instruments asset		—		0.7		—		0.7
Total	$	82.6	$	0.7	$	—	$	83.3
Liabilities:
Derivative instruments liability	$	—	$	24.7	$	3.2	$	27.9
Total	$	—	$	24.7	$	3.2	$	27.9

For cash and cash equivalents and restricted cash, the carrying amount approximates fair value because of the short-term maturity of those instruments and are classified as Level 1 within the fair value hierarchy.

The fair values of our derivative instruments are based upon trades in liquid markets. Valuation model inputs can generally be verified and valuation techniques do not involve significant judgment. The fair values of such financial instruments are classified within Level 2 of the fair value hierarchy. We use our best estimates to determine the fair value of commodity and derivative contracts we hold. These estimates consider various factors including closing exchange prices, time value, volatility factors and credit exposure. The fair value of each contract is discounted using a risk free interest rate.

We also adjust the fair value of financial assets and liabilities to reflect credit risk, which is calculated based on our credit rating and the credit rating of our counterparties. As of December 31, 2020, the credit valuation adjustments resulted in a $0.5 million net increase in fair value, which consists of a $0.1 million pre-tax gain in other comprehensive income and a $0.4 million gain in change in fair value of derivative instruments. As of December 31, 2019, the credit valuation adjustments resulted in a $1.1 million net increase in fair value, which consists of a $0.1 million pre-tax gain in other comprehensive income and a $1.0 million gain in change in fair value of derivative instruments.

The carrying amounts for cash and cash equivalents and restricted cash approximate fair value due to their short-term nature. The fair value of long-term debt and convertible debentures was determined using quoted market prices, as well as discounting the remaining contractual cash flows using a rate at which we could issue debt with a similar maturity as of the balance sheet date.

The conversion option derivative for the Series E Debentures is classified within Level 3 of the fair value hierarchy. The significant unobservable inputs used in developing fair value include the volatility of our common shares and the fair value of the host contract, which is derived from recent similar convertible debenture offerings from peer companies. A discounted cash flow valuation technique is utilized to calculate to fair value of the conversion option derivative.

The following table reconciles, for the year ended December 31, 2020, the beginning and ending balances for the conversion option derivative liability that is recognized at fair value in the consolidated financial statements, using significant unobservable inputs:

	Fair value Measurement Using Significant Unobservable Inputs (Level 3)
	Year Ended
	December 31, 2020
Beginning balance of liability at January 1, 2020	$	3.2
Total unrealized gain		(1.8)
Currency translation loss		0.1
Ending balance of liability at December 31, 2020	$	1.5