11. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of the Company’s financial instruments are as follows (dollars in thousands):


	March 31, 2018				December 31, 2017
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Cash and cash equivalents	$	160,802	$	160,802	$	200,501	$	200,501
Restricted cash		1,472		1,472		1,468		1,468
Long-term debt, including current portion, excluding discount		1,336,941		1,327,763		1,361,826		1,351,474

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses a fair value hierarchy which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. There are three levels of inputs used to measure fair value with Level 1 having the highest priority and Level 3 having the lowest:

Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 Unobservable inputs that are supported by little or no market activity. Level 3 assets or liabilities are those whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques with significant unobservable inputs, as well as assets or liabilities for which the determination of fair value requires significant judgment or estimation.

The Company uses the following methods and assumptions in estimating fair values for its financial instruments:

Cash and cash equivalents, Due from charterers, net, Due from Navig8 pools, net, Restricted cash and Accounts payable and accrued expenses: The carrying amounts reported in the balance sheet approximate fair value due to the short-term maturity or variable rates of these instruments and are considered to be Level 1 items.

Long-term debt, including current portion, excluding discount: The carrying amount of the variable rate borrowings under the Refinancing Facility, Korean Export Credit Facility and Sinosure Credit Facility as of March 31, 2018 and December 31, 2017 approximates the fair value estimated based on current market rates and the Company’s credit spreads. The fair value of the Senior Notes, included in the table above as a component of long-term debt, was based on the income approach using observable Level 2 market expectations at measurement date and standard valuation techniques to convert future amounts to a single present amount. Level 2 inputs include futures contracts on LIBOR, LIBOR cash and swap rates and the Company’s credit spreads. The Company’s credit spread is estimated as the spread over LIBOR which varies from 1.5% to 3.75%.

Derivatives: The Company has elected to use the income approach to value the interest rate swap derivatives using observable Level 2 market expectations at measurement date and standard valuation techniques to convert future amounts to a single present amount (discounted) reflecting current market expectations about those future amounts. Level 2 inputs for the derivative valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR cash and swap rates, implied volatility for floors, basis swap adjustments and credit risk at commonly quoted intervals). Mid-market pricing is used as a practical expedient for fair value measurements. The credit effect on the derivative's fair value is calculated by applying a continuously compounded discount factor based on credit default swap rates of the counterparty when the swap is in an asset position pre-credit and based on the spread over LIBOR of 2% when the swap is in a liability position pre-credit.

Assets held for sale: Because the Gener8 Defiance was expected to be sold within one year of March 31, 2018, the Company classified the Gener8 Defiance as Current assets – assets held for sale, in the condensed consolidated balance sheet. As of December 31, 2017, the Company had no assets held for sale, in the condensed consolidated balance sheet. The fair value of a vessel held for sale for the periods ended March 31, 2018 was determined based on the selling price, net of estimated costs to sell, of such asset based on the contract of sale finalized within a short period of time of its classification as held for sale, and measured on a nonrecurring basis.

The following table summarizes the valuation of assets measured on a nonrecurring basis (dollars in thousands):

March 31, 2018

December 31, 2017

Significant

Other

Significant

Other

Significant

Observable

Unobservable

Observable

Unobservable

Inputs

Total

(Level 2)

(Level 3)

Total

(Level 2)

(Level 3)

Assets held for sale

9,600

—

The following table summarizes the valuation of assets and liabilities measured on a recurring basis (dollars in thousands):


	March 31, 2018						December 31, 2017
			Significant						Significant
			Other		Significant				Other		Significant
			Observable		Unobservable				Observable		Unobservable
			Inputs		Inputs				Inputs		Inputs
	Total		(Level 2)		(Level 3)		Total		(Level 2)		(Level 3)
Interest rate swaps - Assets	$	15,603	$	15,603	$	—	$	6,090	$	6,090	$	—
Interest rate swaps - Liabilities		—		—		—		852		852		—