Note 8 — Fair Value of Financial Instruments, Derivatives and Fair Value Disclosures:

The estimated fair values of the Company’s financial instruments, other than derivatives that are not measured at fair value on a recurring basis, categorized based upon the fair value hierarchy, are as follows:


	Fair Value		Level 1		Level 2
September 30, 2019:
Cash and cash equivalents (1)	$	124,222	$	124,222	$	-
2017 Term Loan Facility		(437,509)		-		(437,509)
ABN Term Loan Facility		(24,118)		-		(24,118)
Sinosure Credit Facility		(275,600)		-		(275,600)
8.5% Senior Notes		(25,800)		(25,800)		-
10.75% Subordinated Notes		(29,314)		-		(29,314)

December 31, 2018:
Cash and cash equivalents (1)	$	117,644	$	117,644	$	-
2017 Term Loan Facility		(459,731)		-		(459,731)
ABN Term Loan Facility		(26,724)		-		(26,724)
Sinosure Credit Facility		(293,284)		-		(293,284)
8.5% Senior Notes		(22,960)		(22,960)		-
10.75% Subordinated Notes		(29,094)		-		(29,094)

⁽¹⁾

Includes non-current restricted cash of $55,839 and $59,331 at September 30, 2019 and December 31, 2018, respectively.

Derivatives

The Company uses interest rate caps, swaps, and collars for the management of interest rate risk exposure associated with changes in LIBOR interest rate payments due on its credit facilities. INSW was a party to an interest rate cap agreement (“Interest Rate Cap”) with a major financial institution covering a notional amount of $350,000 to limit the floating interest rate exposure associated with the 2017 Term Loan Facility. The Interest Rate Cap had a cap rate of 2.605% through the termination date of December 31, 2020. In July 2019, the Company in a cashless transaction replaced the existing Interest Rate Cap with an interest rate collar agreement (“Interest Rate Collar”), which is composed of an interest rate cap and an interest rate floor. The Interest Rate Collar agreement is designated and qualified as a cash flow hedge and contains no leverage features. The Interest Rate Collar, which continues to cover a notional amount of $350,000, is effective as of July 31, 2019 and provides for the following rates based on one-month LIBOR:

Balance of 2019 through December 31, 2020: cap rate of 1.98%, floor rate of 1.98%; and

December 31, 2020 through December 31, 2022: cap rate of 2.26%, floor rate of 1.25%.

The Company determined that as of September 30, 2019, it was reasonably possible that the outstanding principal on the 2017 Term Loan Facility would fall below the notional amount of the Interest Rate Collar during its term as a result of Company’s plan to use a substantial portion of the proceeds from the sale of the LNG Joint Venture to pay down the outstanding principal on the 2017 Term Loan Facility in October 2019 (see Note 9, “Debt”). Accordingly, hedge accounting on the Interest Rate Collar was discontinued as of September 30, 2019 and beginning in October 2019, changes in the mark-to-market valuation of the Interest Rate Collar will no longer be deferred through Other Comprehensive Income/(Loss) and amounts previously deferred in Accumulated Other Comprehensive Loss will remain so classified until the forecasted interest accrual transactions either affect earnings or become not probable of occurring. The Company is currently exploring alternatives for refinancing the 2017 Term Loan Facility and certain other facilities and expects to be able to re-designate all or a significant portion of the Interest Rate Collar for cash flow hedge accounting for its remaining term.

The Company is also party to a floating-to-fixed interest rate swap agreement (“Interest Rate Swap”) with a major financial institution covering the balance outstanding under the Sinosure Credit Facility that effectively converts the Company’s interest rate exposure under the Sinosure Credit Facility from a floating rate based on three-month LIBOR to a fixed rate through the termination date. The Interest Rate Swap agreement is designated and qualifies as a cash flow hedge and contains no leverage features. In May 2019, the Company extended the maturity date of the Interest Rate Swap from March 21, 2022 to March 21, 2025 and reduced the fixed three-month LIBOR rate from 2.99% to 2.76%, effective March 21, 2019.

Derivatives are recorded on a net basis by counterparty when a legal right of offset exists. The following table presents information with respect to the fair values of derivatives reflected in the September 30, 2019 and December 31, 2018 balance sheets on a gross basis by transaction:


	Asset Derivatives			Liability Derivatives
	Balance Sheet			Balance Sheet
	Location	Amount		Location	Amount
September 30, 2019:
Derivatives designated as hedging instruments:
Interest rate collar:
Current portion	Current portion of derivative asset	$	-	Current portion of derivative liability	$	(1,050)
Long-term portion	Long-term derivative asset		-	Long-term derivative liability		(1,680)

Interest rate swaps:
Current portion	Current portion of derivative asset		-	Current portion of derivative liability		(2,238)
Long-term portion	Long-term derivative asset		-	Long-term derivative liability		(7,873)
Total derivatives designated as hedging instruments		$	-		$	(12,841)

December 31, 2018:
Derivatives designated as hedging instruments:
Interest rate cap:
Current portion	Current portion of derivative asset	$	460	Current portion of derivative liability	$	-
Long-term portion	Long-term derivative asset		704	Long-term derivative liability		-

Interest rate swaps:
Current portion	Current portion of derivative asset		-	Current portion of derivative liability		(707)
Long-term portion	Long-term derivative asset		-	Long-term derivative liability		(1,922)
Total derivatives designated as hedging instruments		$	1,164		$	(2,629)

The following tables present information with respect to gains and losses on derivative positions reflected in the condensed consolidated statements of operations or in the condensed consolidated statements of comprehensive loss.

The effect of cash flow hedging relationships recognized in other comprehensive (loss)/income excluding amounts reclassified from accumulated other comprehensive loss, including hedges of equity method investees, for the three and nine months ended September 30, 2019 and 2018 follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
		2019		2018		2019		2018
Interest rate swaps	$	(2,796)	$	2,098	$	(15,722)	$	6,319
Interest rate cap/collar		(2,786)		450		(3,795)		1,996
Total other comprehensive (loss)/income	$	(5,582)	$	2,548	$	(19,517)	$	8,315

The effect of cash flow hedging relationships on the condensed consolidated statement of operations is presented excluding hedges of equity method investees. The effect of the Company’s cash flow hedging relationships on the condensed consolidated statement of operations for the three and nine months ended September 30, 2019 and 2018 follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
		2019		2018		2019		2018
Interest rate swaps	$	480	$	(3)	$	838	$	(3)
Interest rate cap/collar		-		4		99		4
Total interest expense	$	480	$	1	$	937	$	1

See Note 13, “Accumulated Other Comprehensive Loss,” for disclosures relating to the impact of derivative instruments on accumulated other comprehensive loss.

The following table presents the fair values, which are pre-tax, for assets and liabilities measured on a recurring basis (excluding investments in affiliated companies):


	Fair Value		Level 1		Level 2
Assets/(Liabilities) at September 30, 2019:
Derivative Assets (interest rate swaps and collar)	$	-	$	-	$	-	(1)
Derivative Liabilities (interest rate swaps and collar)		(12,841)		-		(12,841)	(1)

Assets/(Liabilities) at December 31, 2018:
Derivative Assets (interest rate cap)	$	1,164	$	-	$	1,164	(1)
Derivative Liabilities (interest rate swaps)		(2,629)		-		(2,629)	(1)

⁽¹⁾

For interest rate caps, swaps and collars, fair values are derived using valuation models that utilize the income valuation approach. These valuation models take into account contract terms such as maturity, as well as other inputs such as interest rate yield curves and creditworthiness of the counterparty and the Company.