Financial Instruments and Fair Value Disclosures

3 Months Ended

Jun. 30, 2022

Financial Instruments and Fair Value Disclosures

Financial Instruments and Fair Value Disclosures

13.  Financial Instruments and Fair Value Disclosures

Our principal financial assets consist of cash and cash equivalents, amounts due from related parties, investment securities, and trade accounts receivable. Our principal financial liabilities consist of long-term debt, accounts payable, amounts due to related parties, accrued liabilities, and derivative instruments.

(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 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 AR Facility. Refer to Note 20 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2022 for information on our interest rate swap agreements related to the 2015 AR Facility.

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 previously taken positions in forward freight agreements (“FFAs”) as economic hedges to reduce the risk related to vessels trading in the spot market, including vessels operating in the Helios Pool, and to take advantage of fluctuations in spot market rates. 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. Settlements of FFAs are recorded in realized gain/(loss) on derivatives. FFAs are considered Level 2 items in accordance with the fair value hierarchy. We had no outstanding FFAs as of June 30, 2022, but we have taken positions in FFAs in the past and we may do so again in the future.

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:

		June 30, 2022				March 31, 2022
	Current assets		Current liabilities		Current assets		Current liabilities
Derivatives not designated as hedging instruments	Derivative instruments		Derivative instruments		Derivative instruments		Derivative instruments
Interest rate swap agreements	$	—	$	—	$	—	$	—
		June 30, 2022				March 31, 2022
	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	$	8,966,713	$	—	$	6,512,479	$	—

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

		Three months ended
Derivatives not designated as hedging instruments	Location of gain/(loss) recognized	June 30, 2022		June 30, 2021
Interest rate swaps—change in fair value	Unrealized gain/(loss) on derivatives		2,454,234		433,726
Interest rate swaps—realized loss	Realized gain/(loss) on derivatives		(50,384)		(903,718)
Gain/(loss) on derivatives, net		$	2,403,850	$	(469,992)

As of June 30, 2022 and March 31, 2022, no fair value measurements for assets or liabilities under Level 1 or Level 3 were recognized in the consolidated balance sheets with the exception of cash and cash equivalents, restricted cash, and investment securities. We did not have any other assets or liabilities measured at fair value on a non-recurring basis during the three months ended June 30, 2022 and 2021.

(c) 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 investment 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 investment securities are considered Level 1 items.

The summary of gains and losses on our investment securities included in other gain/(loss), net on our consolidated statements of operations for the periods presented is as follows:

	Three months ended
	June 30, 2022		June 30, 2021
Unrealized gain/(loss) on investment securities	$	768,335	$	(1,359,671)
Less: Realized gain on investment securities		776,770		305
Net gain/(loss) on investment securities	$	1,545,105	$	(1,359,366)

We have long-term bank debt and the Cresques Japanese Financing for which we believe the carrying values approximate their fair values 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 the Cougar Japanese Financing which bears interest at variable interest rates, being SOFR. We also have long-term debt related to the Corsair Japanese Financing, Concorde Japanese Financing, Corvette Japanese Financing, Cratis Japanese Financing, Copernicus Japanese Financing, Chaparral Japanese Financing, and Caravelle Japanese Financing (collectively the “Japanese Financings”) that incur interest at a fixed-rate. We have long-term debt related to the BALCAP Facility that incurs interest at a fixed-rate. The Japanese Financings and the BALCAP Facility 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 our fixed debt obligations as of:

	June 30, 2022				March 31, 2022
	Carrying Value		Fair Value		Carrying Value		Fair Value
Corsair Japanese Financing	$	36,833,334	$	35,843,886	$	37,645,833	$	36,904,683
Concorde Japanese Financing		41,461,538		40,238,243		42,269,231		41,352,417
Corvette Japanese Financing		42,000,000		40,761,723		42,807,692		41,862,894
Cratis Japanese Financing		48,640,000		45,456,275		49,660,000		46,716,277
Copernicus Japanese Financing		48,640,000		45,456,275		49,660,000		46,716,277
Chaparral Japanese Financing		64,093,936		63,239,553		64,662,242		64,321,963
Caravelle Japanese Financing		48,800,000		45,593,976		49,700,000		46,792,400
BALCAP Facility	$	79,731,035	$	75,083,530	$	81,574,172	$	77,063,912