Fair value of financial instruments

6 Months Ended

Jun. 30, 2018

Our financial instruments consist of cash and cash equivalents, trade and other receivables, accounts receivable from related parties, trade and other payables, accounts payable to related parties, derivatives and debt. We believe the carrying value of these assets and liabilities, excluding the Term Loan, approximate their fair values as of June 30, 2018 and December 31, 2017.

Fair value measurements

The objective of a fair value measurement is to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions. U.S. GAAP establishes a hierarchical disclosure framework, which prioritizes and ranks the level of observability of inputs used in measuring fair value as follows:


•	Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.


•	Level 2: Unadjusted quoted prices for similar assets or liabilities in active markets, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.


•	Level 3: Inputs are unobservable and reflect our judgments about assumptions that market participants would use in pricing an asset or liability.

We did not have any movements in and out of Level 3 for our fair valued instruments during any of the above periods.

The following table presents our fair value hierarchy for our financial liabilities measured at fair value on a recurring basis as of June 30, 2018 ($ in thousands):



	June 30, 2018		Level 1		Level 2		Level 3
Fair value measurements on a recurring basis:
Interest rate swap	$	3,720	$	—	$	3,720	$	—

As of December 31, 2017, there were no financial assets or liabilities measured at fair value on a recurring basis as our deferred consideration was settled during the third quarter of 2017.

The following table presents the changes in our Level 3 fair valued instruments for the three and six months ended June 30, 2017 ($ in thousands):



	Deferred Consideration
Balance as of December 31, 2016	$	1,836
Total gains included in earnings (or change in net assets) ⁽¹⁾	(26		)
Settlements	(630		)
Balance as of March 31, 2017	$	1,180
Total losses included in earnings (or change in net assets) ⁽¹⁾	675
Settlements	(735		)
Balance as of June 30, 2017	$	1,120

________

⁽¹⁾ All losses and gains (other than changes in net assets) were included in interest expense in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

The following tables present our fair value hierarchy for our financial liabilities not measured at fair value as of June 30, 2018 and December 31, 2017 ($ in thousands):



	Carrying Value		Fair Value
	As of June 30, 2018		Level 1		Level 2		Level 3
Financial liabilities not recorded at fair value:
Debt:
Term Loan	$	993,741	$	—	$	—	$	993,962
Revolving Credit Facility	—		—		—		—
Total	$	993,741	$	—	$	—	$	993,962



	Carrying Value		Fair Value
	As of December 31, 2017		Level 1		Level 2		Level 3
Financial liabilities not recorded at fair value:
Debt:
Term Loan	$	898,215	$	—	$	—	$	916,369
Revolving Credit Facility	—		—		—		—
Total	$	898,215	$	—	$	—	$	916,369

The following table summarizes the valuation techniques used to estimate the fair value of our financial liabilities measured at fair value on a recurring basis and our financial liabilities not measured at fair value:



		Valuation Technique
Financial liabilities recorded at fair value:
Interest rate swaps		The fair value of the interest rate swaps is estimated based on the expected future cash flows by incorporating the notional amount of the swaps, the contractual period to maturity, and observable market-based inputs, including interest rate curves. The fair value also incorporates credit valuation adjustments to appropriately reflect nonperformance risk.
Financial liabilities not recorded at fair value:
Term Loan		The fair value of our Term Loan is estimated using cash flow projections over the remaining contractual period by applying market forward rates and discounting back at the appropriate discount rate.
Revolving Credit Facility		The valuation technique of our Revolving Credit Facility is consistent with our Term Loan. The fair value of the Revolving Credit Facility generally approximates its carrying value as the expected term is significantly shorter in duration.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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