Financial Instruments and Fair Value Disclosures

3 Months Ended

Jun. 30, 2024

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, investment securities, amounts due from related parties, derivative instruments, and trade accounts receivable. 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, 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:  One of our long-term bank loans is based on SOFR 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 2023 A&R Debt Facility. We have no exposure to floating rate movements on any of our other debt financings.

(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 SOFR swap yield rates. SOFR 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.

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 as of:

		June 30, 2024				March 31, 2024
	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	$	3,872,696	$	—	$	5,139,056	$	—
		June 30, 2024				March 31, 2024
	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	$	4,989,886	$	—	$	4,145,153	$	—

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, 2024		June 30, 2023
Interest rate swaps—change in fair value	Unrealized gain/(loss) on derivatives	$	(421,627)	$	2,859,274
Interest rate swaps—realized gain	Realized gain on derivatives		1,717,249		1,847,764
Gain on derivatives, net		$	1,295,622	$	4,707,038

As of June 30, 2024 and March 31, 2024, 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 Level 1 items 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, 2024 and 2023.

(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 investment securities that are recorded at fair value and included in other current assets in our balance sheet and available-for-sale debt securities (U.S. treasury notes with an aggregate fair value of $11.6 million as of June 30, 2024 and face values of $1.8 million maturing on September 30, 2024 and $10.0 million maturing March 15, 2025) that are recorded at fair value as a current asset on our balance sheet. We have other financial instruments that are carried at historical cost including trade accounts receivable, equity securities, at cost, 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.

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

	Three months ended
	June 30, 2024		June 30, 2023
Unrealized gain on investment securities	$	312,794	$	421,253

We have long-term bank debt, the 2023 A&R Debt Facility, for which we believe the carrying value approximates fair value as the facility bears interest at variable interest rates based on SOFR at June 30, 2024 and 2023, which is observable at commonly quoted intervals for the full terms of the loans, and hence are considered as a Level 2 item in accordance with the fair value hierarchy. We have long-term debt related to the Corsair Japanese Financing, Cresques Japanese Financing, Cratis Japanese Financing, Copernicus Japanese Financing, Chaparral Japanese Financing, Cougar Japanese Financing, Caravelle Japanese Financing, and Captain Markos Dual-Fuel 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 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 rate debt obligations as of:

	June 30, 2024				March 31, 2024
	Carrying Value		Fair Value		Carrying Value		Fair Value
Corsair Japanese Financing	$	30,333,334	$	28,710,602	$	31,145,834	$	29,624,330
Cresques Japanese Financing		25,166,835		25,549,611		25,608,991		26,180,173
Cratis Japanese Financing		40,480,000		37,066,740		41,500,000		38,302,845
Copernicus Japanese Financing		40,480,000		37,066,740		41,500,000		38,302,845
Chaparral Japanese Financing		59,264,225		56,736,562		59,896,473		57,627,652
Caravelle Japanese Financing		41,600,000		38,005,274		42,500,000		39,003,038
Cougar Japanese Financing		42,800,000		40,637,586		43,700,000		43,715,910
Captain Markos Dual-Fuel Japanese Financing		52,640,000		53,704,974		53,270,000		54,923,798
BALCAP Facility		64,342,815		60,059,393		66,330,459		62,186,682