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:

(1)	Includes non-current restricted cash of $16.4 million and $60.6 million at June 30, 2020 and December 31, 2019, respectively.

Derivatives

The Company uses interest rate caps, collars and swaps for the management of interest rate risk exposure associated with changes in LIBOR interest rate payments due on its credit facilities. In connection with its entry into the Core Term Loan Facility (see Note 9, “Debt”) on January 28, 2020, the Company, in a cashless transaction, converted the $350 million notional interest rate collar into an amortizing $250 million notional pay-fixed, receive-three-month LIBOR interest rate swap subject to a 0% floor. The term of the new hedging arrangement was extended to coincide with the maturity of the Core Term Loan Facility of January 23, 2025 at a fixed rate of 1.97%. The interest rate swap agreement has been re-designated and qualifies as a cash flow hedge and contains no leverage features. Changes in the fair value of the interest rate collar prior to the re-designation on January 28, 2020 recorded through earnings during the first quarter of 2020 totaled a loss of $1.3 million.

During April 2020, the Company entered into an interest rate swap agreement with a major financial institution covering a notional amount of $25 million of the Core Term Loan Facility that effectively converts the Company’s interest rate exposure from a three-month LIBOR floating rate to a fixed rate of 0.50% through the maturity date of January 23, 2025, effective June 30, 2020. The interest rate swap agreement, which contains no leverage features, is designated and qualifies as a cash flow hedge.

The Company is also party to a floating-to-fixed interest rate swap agreement 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 of 2.76% through the termination date of March 21, 2025. The interest rate swap agreement is designated and qualifies as a cash flow hedge and contains no leverage features. In July 2020, the Company extended the maturity date of the interest rate swap from March 21, 2025 to December 21, 2027 and reduced the fixed three-month LIBOR rate from 2.76% to 2.35%, effective June 21, 2020. The new interest rate swap agreement does not in its entirety meet the definition of a derivative instrument because of its off market fixed rate at inception and is deemed to be a hybrid debt instrument with an embedded derivative. Such embedded derivative will be bifurcated and accounted for separately in the same manner as our other derivatives. The debt instrument will be classified in current and/or noncurrent other liabilities on the consolidated balance sheet. All cash flows associated with this hybrid derivative instrument will be classified as financing cash flows in the consolidated statement of cash flows. There is no expected change in the classification of the income statement impact of this hybrid derivative instrument (i.e., such impact will continue to be classified in interest expense in the consolidated statement of operations)

and this instrument will be characterized consistently with the Company’s other interest rate swap derivatives for debt covenant purposes.

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 June 30, 2020 and December 31, 2019 balance sheets on a gross basis by transaction:


	Liability Derivatives
(Dollars in thousands)	Balance Sheet Location	Amount
June 30, 2020:
Derivatives designated as hedging instruments:
Interest rate swaps:
Current portion	Current portion of derivative liability	$	(9,227)
Long-term portion	Long-term derivative liability		(18,191)
Total derivatives designated as hedging instruments		$	(27,418)

December 31, 2019:
Derivatives not designated as hedging instruments:
Interest rate collar:
Current portion	Current portion of derivative liability	$	(1,230)
Long-term portion	Long-term derivative liability		(577)

Derivatives designated as hedging instruments:
Interest rate swaps:
Current portion	Current portion of derivative liability		(2,384)
Long-term portion	Long-term derivative liability		(5,968)
Total derivatives designated as hedging instruments		$	(10,159)

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 income.

The effect of cash flow hedging relationships recognized in other comprehensive loss excluding amounts reclassified from accumulated other comprehensive loss, including hedges of equity method investees, for the three and six months ended June 30, 2020 and 2019 follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)		2020		2019		2020		2019
Derivatives designated as hedging instruments:
Interest rate swaps	$	(2,828)	$	(8,737)	$	(18,949)	$	(12,828)
Interest rate cap		—		(199)		—		(1,107)
Total other comprehensive loss	$	(2,828)	$	(8,936)	$	(18,949)	$	(13,935)

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 six months ended June 30, 2020 and 2019 follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)		2020		2019		2020		2019
Derivatives designated as hedging instruments:
Interest rate swaps	$	1,417	$	219	$	2,312	$	359
Interest rate cap		—		57		—		98

Derivatives not designated as hedging instruments:
Interest rate collar		—		—		1,352		—
Total interest expense	$	1,417	$	276	$	3,664	$	457

See Note 12, “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):


(Dollars in thousands)	Fair Value		Level 1		Level 2
Assets/(Liabilities) at June 30, 2020:
Derivative Assets (interest rate swaps)	$	—	$	—	$	—	⁽¹⁾
Derivative Liabilities (interest rate swaps)		(27,418)		—		(27,418)	⁽¹⁾

Assets/(Liabilities) at December 31, 2019:
Derivative Assets (interest rate swaps and collar)	$	—	$	—	$	—	⁽¹⁾
Derivative Liabilities (interest rate swaps and collar)		(10,159)		—		(10,159)	⁽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.

The following table summarizes the fair values of assets for which an impairment charge was recognized for the three and six months ended June 30, 2020:


(Dollars in thousands)		Fair Value		Level 2		Total Impairment Charges
Assets:
Crude Tankers - Vessels held for use ⁽¹⁾⁽²⁾	$	30,380	$	30,380	$	(5,469)

(1)	Pre-tax impairment charges of $5.5 million related to one 2002-built VLCC vessel in the Crude Tanker segment were recorded during the three-month period ended June 30, 2020.

(2)

Fair value measurement of $30.4 million at June 30, 2020 used to determine impairment for one 2002-built VLCC held for use was based upon a market approach, which considered the expected sales price of the vessel obtained from vessel appraisals. Because sales of vessel occur somewhat infrequently the expected sales price is considered to be Level 2.