19. Financial Instruments and Fair Value Disclosures

Our principal financial assets consist of cash and cash equivalents, amounts due from related parties, trade accounts receivable and derivative instruments. Our principal financial liabilities consist of long-term debt, derivative instruments, 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 receivables 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 interest rate swaps related to the RBS Loan Facility were terminated during the year ended March 31, 2017 for $8.1 million.

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



	Transaction	Termination	Fixed		Nominal value	Nominal value
Interest rate swap	Date	Date	interest rate		March 31, 2017	March 31, 2016
RBS - CMNL	July 2013(7)	November 2016(7)	5.395	%	—	20,456,000
RBS - CMNL	July 2013(7)	November 2016(7)	4.936	%	—	7,671,000
RBS - CJNP	July 2013(7)	November 2016(7)	4.772	%	—	27,979,875
RBS - CJNP	July 2013(7)	November 2016(7)	2.960	%	—	9,420,125
RBS - CNML	July 2013(7)	November 2016(7)	4.350	%	—	43,000,000
2015 Debt Facility - Citibank(1)	September 2015	March 2022	1.933	%	200,000,000	200,000,000
2015 Debt Facility - ING(2)	September 2015	March 2022	2.002	%	50,000,000	50,000,000
2015 Debt Facility - CBA(3)	October 2015	March 2022	1.428	%	71,250,000	82,550,000
2015 Debt Facility - Citibank(4)	October 2015	March 2022	1.380	%	106,875,000	123,825,000
2015 Debt Facility - Citibank(5)	June 2016	March 2022	1.213	%	67,124,650	—
2015 Debt Facility - Citibank(6)	June 2016	March 2022	1.161	%	27,583,142	—
					522,832,792	564,902,000

⁽¹⁾

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

⁽²⁾

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

⁽³⁾

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

⁽⁴⁾

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

⁽⁵⁾

Reduces quarterly by $2.0 million with a final settlement of $29.9 million due in March 2022.

⁽⁶⁾

Reduces quarterly by $0.8 million with a final settlement of $12.3 million due in March 2022.

⁽⁷⁾

RBS swaps assumed from Predecessor Businesses in July 2013 and terminated in November 2016.

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, 2017				March 31, 2016
	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	$	5,843,368	$	—	$	—	$	21,647,965

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


Derivatives not designated as hedging instruments	Location of gain/(loss) recognized	March 31, 2017		March 31, 2016		March 31, 2015
Interest Rate Swap—Change in fair value	Unrealized gain/(loss) on derivatives	$	27,491,333	$	(8,917,503)	$	1,331,954
Interest Rate Swap—Realized loss	Realized loss on derivatives		(13,797,478)		(6,858,126)		(5,291,157)
Gain/(loss) on derivatives, net		$	13,693,855	$	(15,775,629)	$	(3,959,203)

As of March 31, 2017 and March 31, 2016, no fair value measurements for assets or liabilities under Level 1 or Level 3 were recognized in the accompanying consolidated balance sheets.

Fair value on a non-recurring basis: For the years ended March 31, 2017, 2016 and 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. We prepared future undiscounted cash flows for the PGC vessel as there were indicators of impairment for this size vessel, which provided evidence that the book value was not recoverable. 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 on this PGC vessel of $1.4 million during the year ended March 31, 2015. No impairment loss was incurred for the years ended March 31, 2017 and 2016.

We did not have any other assets or liabilities measured at fair value on a non-recurring basis during the years ended March 31, 2017, 2016 and 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.