Financial Instruments (Predecessor)

12 Months Ended

Mar. 31, 2016

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 may subject us to significant concentrations of credit risk, consist principally of amounts due from our charterers, including the receivable from Helios Pool, and cash and cash equivalents. We limit our credit risk with amounts due from our charterers, including those through the Helios Pool, by performing ongoing credit evaluations of our charterers’ financial condition and generally do not require collateral from our charterers. We limit our credit risk with our cash and cash equivalents by placing it with highly-rated financial institutions.

(b)

Interest rate risk: Our long‑term bank loans are based on LIBOR and hence we are exposed to movements thereto. We entered into interest rate swap agreements in order to hedge a majority of our variable interest rate exposure related to the RBS Loan Facility and our 2015 Debt Facility.

The principal terms of the interest rate swaps are as follows:



	Transaction	Termination	Fixed		Nominal value	Nominal value
Interest rate swap	Date	Date	interest rate		March 31, 2016	March 31, 2015
RBS - CMNL(1)	July 2013(8)	Nov 2018	5.395	%	20,456,000	20,456,000
RBS - CMNL(1)	July 2013(8)	Nov 2018	4.936	%	7,671,000	10,228,000
RBS - CJNP(2)	July 2013(8)	March 2019	4.772	%	27,979,875	30,523,500
RBS - CJNP(2)	July 2013(8)	March 2019	2.960	%	9,420,125	10,276,500
RBS - CNML(3)	July 2013(8)	July 2020	4.350	%	43,000,000	46,440,000
2015 Debt Facility - Citibank(4)	September 2015	March 2022	1.933	%	200,000,000	—
2015 Debt Facility - ING(5)	September 2015	March 2022	2.000	%	50,000,000	—
2015 Debt Facility - CBA(6)	October 2015	March 2022	1.430	%	82,550,000	—
2015 Debt Facility - Citibank(7)	October 2015	March 2022	1.380	%	123,825,000	—
					564,902,000	117,924,000

⁽¹⁾

Reduces semi-annually by $1.3 million with a final settlement of $21.7 million due in November 2018.

⁽²⁾

Reduces semi-annually by $1.7 million with final settlement of $28.9 million due in March 2019.

⁽³⁾

Reduces semi-annually by $1.7 million with a final settlement of $27.5 million due in July 2020.

⁽⁴⁾

Non-amortizing with a final settlement of $200 million in March 2022.

⁽⁵⁾

Non-amortizing with a final settlement of $50 million in March 2022.

⁽⁶⁾

Reduces quarterly by $2.8 million with a final settlement of $17.9 million due in March 2022.

⁽⁷⁾

Reduces quarterly by $4.2 million with a final settlement of $26.9 million due in March 2022.

⁽⁸⁾

RBS swaps assumed from Predecessor Businesses in July 2013

Fair Value on a Recurring Basis: 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 following table summarizes the location on the balance sheet of the financial assets and liabilities that are carried at fair value on a recurring basis, which comprise our financial derivatives all of which are considered Level 2 items in accordance with the fair value hierarchy:


		March 31, 2016				March 31, 2015
	Other non-current assets		Long-term liabilities		Other non-current assets		Long-term liabilities
Derivatives not designated as hedging instruments	Derivative instruments		Derivative instruments		Derivative instruments		Derivative instruments
Interest rate swap agreements	$	—	$	21,647,965	$	—	$	12,730,462

The effect of derivative instruments within the consolidated statement of operations for the periods presented is as follows:


						July 1, 2013
		Year ended		Year ended		(inception)
Derivatives not designated as hedging instruments	Location of gain/(loss) recognized	March 31, 2016		March 31, 2015		to March 31, 2014
Interest Rate Swap—Change in fair value	Gain/(loss) on derivatives, net	$	(8,917,503)	$	1,331,954	$	2,623,456
Interest Rate Swap—Realized loss	Gain/(loss) on derivatives, net		(6,858,126)		(5,291,157)		(3,727,457)
Gain/(loss) on derivatives, net		$	(15,775,629)	$	(3,959,203)	$	(1,104,001)

As of March 31, 2016 and March 31, 2015, 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, 2016 or during the year ended March 31, 2015.

Fair value on a non-recurring basis: As of March 31, 2016 and March 31, 2015, we reviewed the carrying amount and the estimated recoverable amount for each of our vessels. The review for the year ended March 31, 2015 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 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. No impairment loss was incurred for the year ended March 31, 2016.

We did not have any other assets or liabilities measured at fair value on a non-recurring basis during the year ended March 31, 2016 or during the year ended March 31, 2015.

(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 (see (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.