10. Financial Instruments and Fair Value Disclosures

Our principal financial assets consist of cash and cash equivalents, restricted cash amounts due from related parties, trade accounts receivable and derivative instruments. Our principal financial liabilities consist of long-term debt, 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, cash and cash equivalents, and restricted cash. 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 and restricted cash by placing it with highly-rated financial institutions.

(b)

Interest rate risk: Our long‑term bank loans are based on the London Interbank Offered Rate (“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 our 2015 Debt Facility. Refer to Note 18 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2019 for information on our interest rate swap agreements related to the 2015 Debt Facility.

(c)

Fair value measurements: 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 or receive for the early termination of the agreements.

Additionally, we have taken positions in freight forward agreements (“FFAs”) as economic hedges to reduce the risk related to vessels trading in the spot market and to take advantage of fluctuations in market prices. Customary requirements for trading FFAs include the maintenance of initial and variation margins based on expected volatility, open position and mark-to-market of the contracts. FFAs are recorded as assets/liabilities until they are settled. Changes in fair value prior to settlement are recorded in unrealized gain/(loss) on derivatives. Upon settlement, if the contracted charter rate is less than the average of the rates for the specified route and time period, as reported by an identified index, the seller of the FFA is required to pay the buyer the settlement sum, being an amount equal to the difference between the contracted rate and the settlement rate, multiplied by the number of days in the specified period covered by the FFA. Conversely, if the contracted rate is greater than the settlement rate, the buyer is required to pay the seller the settlement sum. Settlement of FFAs are recorded in realized gain/(loss) on derivatives. FFAs are considered Level 2 items in accordance with the fair value hierarchy.

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:


		September 30, 2019				March 31, 2019
	Current assets		Current liabilities		Current assets		Current liabilities
Derivatives not designated as hedging instruments	Derivative instruments		Derivative instruments		Derivative instruments		Derivative instruments
Forward freight agreements		720,000		—		—		—

		September 30, 2019				March 31, 2019
	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	$	974,184	$	2,208,585	$	6,448,498	$	—
Forward freight agreements		225,000		—		—		—
Total	$	1,199,184	$	2,208,585	$	6,448,498	$	—

The effect of derivative instruments within the unaudited interim condensed consolidated statements of operations included herein for the periods presented is as follows:


		Three months ended
Derivatives not designated as hedging instruments	Location of gain/(loss) recognized	September 30, 2019		September 30, 2018
Forward freight agreements—change in fair value	Unrealized gain/(loss) on derivatives	$	945,000	$	—
Interest rate swap—change in fair value	Unrealized gain/(loss) on derivatives		(1,612,110)		1,051,460
Interest rate swap—realized gain/(loss)	Realized gain on derivatives		709,146		830,991
Gain/(loss) on derivatives, net		$	42,036	$	1,882,451


		Six months ended
Derivatives not designated as hedging instruments	Location of gain/(loss) recognized	September 30, 2019		September 30, 2018
Forward freight agreements—change in fair value	Unrealized gain/(loss) on derivatives	$	945,000	$	—
Interest rate swap—change in fair value	Unrealized gain/(loss) on derivatives		(7,682,899)		2,759,076
Interest rate swap—realized gain/(loss)	Realized gain on derivatives		1,742,141		1,613,556
Gain/(loss) on derivatives, net		$	(4,995,758)	$	4,372,632

As of September 30, 2019 and March 31, 2019, no fair value measurements for assets or liabilities under Level 1 or Level 3 were recognized in the accompanying consolidated balance sheets with the exception of cash and cash equivalents, restricted cash, and securities. We did not have any other assets or liabilities measured at fair value on a non-recurring basis during the three and six months ended September 30, 2019 and 2018.

(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) and securities that are included in other current assets in our balance sheet that we record at fair value, 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, restricted cash, 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. Cash and cash equivalents, restricted cash and securities are considered Level 1 items. We have long-term bank debt for which we believe the 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. We also have long-term debt related to the Corsair Japanese Financing, Concorde Japanese Financing, Corvette Japanese Financing, CJNP Japanese Financing, CMNL Japanese Financing, and CNML Japanese Financing (collectively the “Japanese Financings”) that incur interest at a fixed-rate with the initial principal amount amortized to the purchase obligation price of each vessel. The Japanese Financings are considered Level 2 items in accordance with the fair value hierarchy and the fair value of each is based on a discounted cash flow analysis using current observable interest rates. The following table summarizes the carrying value and estimated fair value of the Japanese Financings as of:


	September 30, 2019				March 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
Corsair Japanese Financing	$	45,770,833	$	48,310,731	$	47,395,833	$	45,901,900
Concorde Japanese Financing		50,346,154		53,385,688		51,961,538		50,176,288
Corvette Japanese Financing		50,884,615		53,988,368		52,500,000		50,671,689
CJNP Japanese Financing		19,782,500		21,231,215		20,506,250		20,918,881
CMNL Japanese Financing		18,761,310		20,352,955		19,446,131		19,862,056
CNML Japanese Financing		20,963,690		22,778,604		21,666,369		22,137,090