Financial Instruments (Predecessor)

12 Months Ended

4 Months Ended

Mar. 31, 2015

Jul. 28, 2013

20. Financial Instruments and Fair Value Disclosures

Our principal financial assets consist of cash and cash equivalents, amounts due from related parties and trade accounts receivable. Our principal financial liabilities consist of long-term bank loan, interest rate swaps, accounts payable, amounts due to related parties and accrued liabilities.

(a)Concentration of credit risk: Financial instruments, which potentially subject us to significant concentrations of credit risk, consist principally of trade accounts receivable, amounts due from related parties, cash and cash equivalents. We limit our credit risk with accounts receivable by performing ongoing credit evaluations of our customers’ financial condition and generally do not require collateral for our trade accounts receivable. We place our cash and cash equivalents, with highly-rated financial institutions.

(b)Interest rate risk: Our long-term bank loan is based on LIBOR and hence we are exposed to movements in LIBOR. We entered into interest rate swap agreements in order to hedge our variable interest rate exposure. We use interest rate swaps for the management of interest rate risk exposure. The interest rate swaps effectively convert our debt from a floating to a fixed rate. To hedge our exposure to changes in interest rates we are a party to five floating-to-fixed interest rate swaps with RBS. Interest rate swaps are stated at fair value, which is determined using a discounted cash flow approach based on market-based LIBOR swap yield rates. LIBOR swap rates are observable at commonly quoted intervals for the full terms of the swaps and therefore are considered Level 2 items in accordance with the fair value hierarchy. The fair value of the interest rate swap agreements approximates the amount that we would have to pay for the early termination of the agreements. The principal terms of the interest rate swaps are as follows:

Subsidiary	Termination Date	Fixed interest rate		Nominal value March 31, 2015
CMNL(1)	Nov 2018	5.395	%	20,456,000
CMNL(1)	Nov 2018	4.936	%	10,228,000
CJNP(2)	March 2019	4.772	%	30,523,500
CJNP(2)	March 2019	2.960	%	10,276,500
CNML(3)	July 2020	4.350	%	46,440,000
				117,924,000

(1)

reduces semi-annually by $1,278,500 with a final settlement of $21,734,500 due in November 2018.

(2)

reduces semi-annually by $1,700,000 with a final settlement of $28,900,000 due in March 2019.

(3)

RBS exercised its right to extend the interest rate swap until July 2020 and based on the extension reduces semi-annually by $1,720,000 with a final settlement of $27,520,000 due in July 2020.

(c)Fair Value Measurements:

Fair Value on a Recurring Basis: The following table summarizes the bases used to measure the financial assets and liabilities that are carried at fair value on a recurring basis on our balance sheet, which comprise our financial derivatives:

		March 31, 2015		March 31, 2014
Derivatives not designated as hedging instruments	Balance sheet location	Asset derivatives	Liability derivatives	Asset derivatives	Liability derivatives
Interest rate swap agreements	Long-term liabilities—Derivative instruments	—	12,730,462	—	14,062,416

The effect of derivative instruments on the consolidated statement of operations for the periods presented are as follows:

Derivatives not designated as hedging instruments	Location of gain/(loss) recognized	Year ended March 31, 2015			July 1, 2013 (inception) to March 31, 2014
Interest Rate Swap—Change in fair value	Gain/(loss) on derivatives, net	$	1,331,954		$	2,623,456
Interest Rate Swap—Realized loss	Gain/(loss) on derivatives, net	(5,291,157		)	(3,727,457		)
Loss on derivatives—net		$	(3,959,203	)	$	(1,104,001	)

As of March 31, 2015 and March 31, 2014, no fair value measurements for assets or liabilities under Level 1 or Level 3 were recognized in the accompanying consolidated balance sheets. We did not have any other assets or liabilities measured at fair value on a non-recurring basis during the year ended March 31, 2015 or during the period ended March 31, 2014.

Fair value on a non-recurring basis: As of March 31, 2015, we reviewed the carrying amount and the estimated recoverable amount for each of our vessels. The review indicated that the carrying amount was not recoverable for our PGC vessel. The fair value is considered a Level 2 item in the fair value hierarchy and is based on our best estimate of the value of the vessel, which is supported by three independent vessel appraisals. We recognized an impairment loss of $1.4 million during the year ended March 31, 2015 as further described in Note 6 to the consolidated financial statements.

We did not have any other assets or liabilities measured at fair value on a nonrecurring basis during the year ended March 31, 2015 or during the period ended March 31, 2014.

(d)Book values and fair values of financial instruments. In addition to the derivatives that we are required to record at fair value on our balance sheet (refer (c) above), we have other financial instruments that are carried at historical cost. These financial instruments include trade accounts receivable, amounts due from related parties, cash and cash equivalents, accounts payable, amounts due to related parties and accrued liabilities for which the historical carrying value approximates the fair value due to the short-term nature of these financial instruments. We also have long term bank debt for which we believe the historical carrying value approximates their fair value as the loans bear interest at variable interest rates, being LIBOR, which is observable at commonly quoted intervals for the full terms of the loans, and hence are considered as Level 2 items in accordance with the fair value hierarchy. Cash and cash equivalents and restricted cash are considered Level 1 items.

Predecessor

Financial Instruments

Financial Instruments

14.Financial Instruments

The principal financial assets of the Company consist of cash and cash equivalents, amounts due from related parties and trade accounts receivable. The principal financial liabilities of the Company consist of long-term bank loans, interest rate swaps, accounts payable, amounts due to related parties and accrued liabilities.

(a)

Interest rate risk: The Company’s long-term bank loans are based on LIBOR and hence the Company is exposed to movements in LIBOR. The Company entered into interest rate swap agreements, discussed in Note 13 , in order to hedge its variable interest rate exposure.

(b)

Concentration of credit risk: Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of trade accounts receivable, amounts due from related parties, cash and cash equivalents. The Company limits its credit risk with accounts receivable by performing ongoing credit evaluations of its customers’ financial condition and generally does not require collateral for its trade accounts receivable. The Company places its cash and cash equivalents, with high credit quality financial institutions.

(c)

Fair value: The carrying values of trade accounts receivable, amounts due from related parties, cash and cash equivalents, accounts payable, amounts due to related parties and accrued liabilities are reasonable estimates of their fair value due to the short-term nature of these financial instruments. The fair value of long-term bank loans approximate the recorded value, due to their variable interest rate, being the LIBOR. LIBOR rates are observable at commonly quoted intervals for the full terms of the loans and hence long-term bank loans are considered Level 2 items in accordance with the fair value hierarchy.

The interest rate swaps, discussed in Note 13, are stated at fair value. The fair value of the interest rate swaps is determined using a discounted cash flow approach based on market-based LIBOR swap yield rates. LIBOR swap rates are observable at commonly quoted intervals for the full terms of the swaps and therefore are considered Level 2 items in accordance with the fair value hierarchy. The fair value of the interest rate swap agreements approximates the amount that the Company would have to pay for the early termination of the agreements.