Most of the Company’s assets and certain of its liabilities are measured at or based on their fair values. The application of fair value may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability and whether the Company has elected to carry the item at its fair value as discussed in the following paragraphs.

The Company identified its MSRs, its MSLs and all of its non-cash financial assets, to be accounted for at fair value so changes in fair value will be reflected in income as they occur and more timely reflect the results of the Company’s performance. The Company has also identified its ESS financing to be accounted for at fair value as a means of hedging the related MSRs’ fair value risk.

Following is a summary of assets and liabilities that are measured at fair value on a recurring basis:

As shown above, certain of the Company’s loans held for sale, IRLCs, repurchase agreement derivatives, MSRs, ESS and MSLs are measured using Level 3 fair value inputs. Following are roll forwards of assets and liabilities measured at fair value using “Level 3” fair value inputs at either the beginning or the end of the year presented for each of the three years ended December 31, 2022:

(1)	For the purpose of this table, the IRLC asset and liability positions are shown net.



	Year ended
Liabilities	December 31, 2022
	(in thousands)
Mortgage servicing liabilities:
Balance, December 31, 2021	$	2,816
Changes in fair value included in income		(720)
Balance, December 31, 2022	$	2,096
Changes in fair value recognized during the year relating to liabilities still outstanding at December 31, 2022	$	(720)


	Year ended December 31, 2021
			Net interest		Mortgage
	Loans held		rate lock		servicing
Assets	for sale		commitments (1)		rights			Total

	(in thousands)
Balance, December 31, 2020	$	4,675,169	$	677,026	$	2,581,174	$	7,933,369
Purchases and issuances, net		20,330,785		1,654,476		—		21,985,261
Capitalization of interest and advances		169,053		—		—		169,053
Sales and repayments		(11,783,818)		—		—		(11,783,818)
Mortgage servicing rights resulting from loan sales		—		—		1,861,949		1,861,949
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		285,501		—		—		285,501
Other factors		—		489,547		(565,045)		(75,498)
		285,501		489,547		(565,045)		210,003
Transfers from Level 3 to Level 2		(12,547,732)		—		—		(12,547,732)
Transfer to real estate acquired in settlement of loans		(82)		—		—		(82)
Transfers to loans held for sale		—		(2,498,856)		—		(2,498,856)
Balance, December 31, 2021	$	1,128,876	$	322,193	$	3,878,078	$	5,329,147
Changes in fair value recognized during the year relating to assets still held at December 31, 2021	$	22,516	$	322,193	$	(565,045)	$	(220,336)


	Year ended December 31, 2021
	Excess
	servicing		Mortgage
	spread		servicing
Liabilities	financing		liabilities		Total

	(in thousands)
Balance, December 31, 2020	$	131,750	$	45,324	$	177,074
Issuance of excess servicing spread financing pursuant to a recapture agreement with PennyMac Mortgage Investment Trust		557		—		557
Accrual of interest		1,280		—		1,280
Mortgage servicing liabilities resulting from loan sales		—		106,631		106,631
Changes in fair value included in income		1,037		(149,139)		(148,102)
Repayments		(134,624)		—		(134,624)
Balance, December 31, 2021	$	—	$	2,816	$	2,816
Changes in fair value recognized during the year relating to liabilities still outstanding at December 31, 2021	$	—	$	(3,156)	$	(3,156)


	Year ended December 31, 2020
			Net interest		Repurchase		Mortgage
	Loans held		rate lock		agreement		servicing
Assets	for sale		commitments (1)		derivatives		rights		Total

	(in thousands)
Balance, December 31, 2019	$	383,878	$	136,650	$	8,187	$	2,926,790	$	3,455,505
Purchases and issuances, net		9,672,322		2,028,957		—		25,473		11,726,752
Capitalization of interest and advances		119,037		—		—		—		119,037
Sales and repayments		(2,381,493)		—		(8,270)		—		(2,389,763)
Mortgage servicing rights resulting from loan sales		—		—		—		1,138,045		1,138,045
Changes in fair value included in income arising from:
Changes in instrument-specific credit risk		127,780		—		—		—		127,780
Other factors		—		1,254,235		83		(1,509,134)		(254,816)
		127,780		1,254,235		83		(1,509,134)		(127,036)
Transfers from Level 3 to Level 2		(3,246,282)		—		—		—		(3,246,282)
Transfers to real estate acquired in settlement of loans		(73)		—		—		—		(73)
Transfers to loans held for sale		—		(2,742,816)		—		—		(2,742,816)
Balance, December 31, 2020	$	4,675,169	$	677,026	$	—	$	2,581,174	$	7,933,369
Changes in fair value recognized during the year relating to assets still held at December 31, 2020	$	153,474	$	677,026	$	—	$	(1,509,134)	$	(678,634)

(1)	For the purpose of this table, the IRLC asset and liability positions are shown net.


	Year ended December 31, 2020
	Excess
	servicing		Mortgage
	spread		servicing
Liabilities	financing		liabilities		Total

	(in thousands)
Balance, December 31, 2019	$	178,586	$	29,140	$	207,726
Issuance of excess servicing spread financing pursuant to a recapture agreement with PennyMac Mortgage Investment Trust		2,093		—		2,093
Accrual of interest		8,418		—		8,418
Mortgage servicing liabilities resulting from loan sales		—		23,325		23,325
Changes in fair value included in income		(24,970)		(7,141)		(32,111)
Repayments		(32,377)		—		(32,377)
Balance, December 31, 2020	$	131,750	$	45,324	$	177,074
Changes in fair value recognized during the year relating to liabilities still outstanding at December 31, 2020	$	(24,970)	$	(7,141)	$	(32,111)

The Company had transfers among the fair value levels arising from the return to salability in the active secondary market of certain loans held for sale and from transfers of IRLCs to loans held for sale at fair value upon purchase or funding.

Assets and Liabilities Measured at Fair Value under the Fair Value Option

Net changes in fair values included in income for assets and liabilities carried at fair value as a result of the Company’s election of the fair value option by income statement line item are summarized below:


	Year ended December 31,
	2022						2021						2020
	Net gains on		Net				Net gains on		Net				Net gains on		Net
	loans held		loan				loans held		loan				loans held		loan
	for sale at		servicing				for sale at		servicing				for sale at		servicing
	fair value		fees		Total		fair value		fees		Total		fair value		fees		Total

	(in thousands)
Assets:
Loans held for sale	$	(219,054)	$	—	$	(219,054)	$	2,568,318	$	—	$	2,568,318	$	2,899,314	$	—	$	2,899,314
Mortgage servicing rights		—		353,456		353,456		—		(565,045)		(565,045)		—		(1,509,134)		(1,509,134)
	$	(219,054)	$	353,456	$	134,402	$	2,568,318	$	(565,045)	$	2,003,273	$	2,899,314	$	(1,509,134)	$	1,390,180
Liabilities:
Excess servicing spread financing payable to PennyMac Mortgage Investment Trust	$	—	$	—	$	—	$	—	$	(1,037)	$	(1,037)	$	—	$	24,970	$	24,970
Mortgage servicing liabilities		—		720		720		—		149,139		149,139		—		7,141		7,141
	$	—	$	720	$	720	$	—	$	148,102	$	148,102	$	—	$	32,111	$	32,111

Following are the fair value and related principal amounts due upon maturity of assets accounted for under the fair value option:


	December 31, 2022						December 31, 2021
			Principal						Principal
			amount						amount
	Fair		due upon				Fair		due upon
Loans held for sale	value		maturity		Difference		value		maturity		Difference

	(in thousands)
Current through 89 days delinquent	$	3,450,578	$	3,428,052	$	22,526	$	9,577,398	$	9,263,242	$	314,156
90 days or more delinquent:
Not in foreclosure		47,252		53,351		(6,099)		153,162		153,875		(713)
In foreclosure		11,470		16,811		(5,341)		11,923		13,649		(1,726)
	$	3,509,300	$	3,498,214	$	11,086	$	9,742,483	$	9,430,766	$	311,717

Assets Measured at Fair Value on a Nonrecurring Basis

Following is a summary of assets held at year end that were measured based on fair value on a nonrecurring basis during the year:


Real estate acquired in settlement of loans	Level 1		Level 2		Level 3		Total

	(in thousands)
December 31, 2022	$	—	$	—	$	1,850	$	1,850
December 31, 2021	$	—	$	—	$	2,588	$	2,588

The following table summarizes the total net losses recognized on assets measured based on fair values on a nonrecurring basis during the year:


	Year ended December 31,
	2022		2021		2020

	(in thousands)
Real estate acquired in settlement of loans	$	523	$	799	$	814

Fair Value of Financial Instruments Carried at Amortized Cost

The Company’s Assets sold under agreements to repurchase, Mortgage loan participation purchase and sale agreements, Notes payable secured by mortgage servicing assets, Unsecured senior notes and Obligations under capital lease are carried at amortized cost.

These assets and liabilities are classified as “Level 3” fair value items due to the Company’s reliance on unobservable inputs to estimate their fair values. The Company has concluded that the fair values of these liabilities other than the Notes payable secured by mortgage servicing assets and the Unsecured senior notes approximate their carrying values due to their short terms and/or variable interest rates.

The Company estimates the fair value of the Term Notes and the Unsecured senior notes based on non-affiliate broker indications of fair value. The fair value and carrying value of these notes are summarized below:


	December 31, 2022				December 31, 2021
	Fair value		Carrying value		Fair value		Carrying value

	(in thousands)
Term Notes	$	1,677,476	$	1,794,475	$	1,302,640	$	1,297,622
Unsecured senior notes	$	1,550,750	$	1,779,920	$	1,790,375	$	1,776,219

Valuation Governance

Most of the Company’s financial assets, and all of its derivatives, MSRs, ESS, and MSLs, are carried at fair value with changes in fair value recognized in current period income. Certain of the Company’s financial assets and derivatives and all of its MSRs, ESS, and MSLs are “Level 3” fair value assets and liabilities which require use of unobservable inputs that are significant to the estimation of the items’ fair values. Unobservable inputs reflect the Company’s own judgments about the factors that market participants use in pricing an asset or liability, and are based on the best information available under the circumstances.

Due to the difficulty in estimating the fair values of “Level 3” fair value assets and liabilities, the Company has assigned responsibility for estimating the fair value of these assets and liabilities to specialized staff and subjects the valuation process to significant senior management oversight:

●

The Company’s Financial Analysis and Valuation group (the “FAV group”) is responsible for estimating the fair values of “Level 3” fair value assets and liabilities other than IRLCs and maintaining its valuation policies and procedures.

●

The Company’s Capital Markets Risk Management staff develops the fair value of the Company’s IRLCs which is reviewed by its Capital Markets Operations group.

With respect to the non-IRLC “Level 3” valuations, the FAV group reports to the Company’s senior management valuation committee, which oversees the valuations. The FAV group monitors the models used for valuation of the Company’s “Level 3” fair value assets and liabilities, including the models’ performance versus actual results, and reports those results as well as changes in the valuation of the non-IRLC “Level 3” fair value assets and liabilities, including major factors affecting the valuation and any changes in model methods and inputs, to the Company’s senior management valuation committee. To assess the reasonableness of its valuations, the FAV group presents an analysis of the effect on the valuation of changes to the significant inputs to the models and for MSRs, comparisons of its estimates of fair value to those procured from non-affiliate brokers and comparisons of the key inputs used in the Company’s valuation model to published surveys.

The Company’s senior management valuation committee includes the Company’s chief financial, risk, credit and deputy chief investment officers as well as other senior members of the Company’s finance, capital markets and risk management staff.

Valuation Techniques and Inputs

Following is a description of the techniques and inputs used in estimating the fair values of “Level 2” and “Level 3” fair value assets and liabilities:

Loans Held for Sale

Most of the Company’s loans held for sale at fair value are saleable into active markets and are therefore categorized as “Level 2” fair value assets. The fair values of “Level 2” fair value loans are determined using their contracted selling price or quoted market price or market price equivalent.

Certain of the Company’s loans held for sale are not saleable into active markets and are therefore categorized as “Level 3” fair value assets. Loans held for sale categorized as “Level 3” fair value assets include:

●

Government guaranteed or insured loans purchased by the Company from Ginnie Mae guaranteed pools in its loan servicing portfolio. The Company’s right to purchase government guaranteed or insured loans arises as the result of the loan being at least three months delinquent on the date of purchase by the Company and provides an alternative to the Company’s obligation to continue advancing principal and interest at the coupon rate of the related Ginnie Mae security. Such loans may be resold to investors and thereafter may be repurchased to the extent eligible for resale into a new Ginnie Mae guaranteed security.

Loans become eligible for resale into a new Ginnie Mae security when the loans become current either through completion of a modification of the loan’s terms or otherwise after three months of timely payments and when the issuance date of the new security is at least 120 days after the date the loan was last delinquent.

●

Loans that are not saleable into active markets due to identification of a defect by the Company or to the repurchase by the Company of a loan with an identified defect.

●

Home equity loans. At present, there is no active market with observable inputs that are significant to the estimation of fair value of the home equity loans the Company produces.

The Company uses a discounted cash flow model to estimate the fair value of its “Level 3” fair value loans held for sale. The significant unobservable inputs used in the fair value measurement of the Company’s “Level 3” fair value loans held for sale are discount rates, home price projections, voluntary and total prepayment/resale speeds. Significant changes in any of those inputs in isolation could result in a significant change to the loans’ fair value measurement. Increases in home price projections are generally accompanied by an increase in voluntary prepayment speeds.

Following is a quantitative summary of key “Level 3” fair value inputs used in the valuation of loans held for sale at fair value:


	December 31,
	2022		2021
Fair value (in thousands)	$	345,772	$	1,128,876
Key inputs (1):
Discount rate:
Range		5.5% – 10.2%		2.2% – 9.2%
Weighted average		5.7%		2.3%
Twelve-month projected housing price index change:
Range		(1.9)% – (1.7)%		6.1% – 6.5%
Weighted average		(1.8)%		6.2%
Voluntary prepayment/resale speed (2):
Range		4.7% – 25.6%		0.4% – 30.3%
Weighted average		21.6%		22.0%
Total prepayment/resale speed (3):
Range		4.8% – 36.1%		0.4% – 39.3%
Weighted average		29.4%		28.2%

(1)	Weighted average inputs are based on fair value of the “Level 3” loans.

(2)	Voluntary prepayment/resale speed is measured using Life Voluntary Conditional Prepayment Rate (“CPR”).

(3)	Total prepayment speed is measured using Life Total CPR, which includes both voluntary and involuntary prepayment/resale rates.

Changes in fair value relating to loans held for sale as the result of changes in the loan’s instrument specific credit risk are indicated by successful modifications of the loan’s terms or changes in the respective loan’s delinquency status and performance history at year end from the later of the beginning of the year or acquisition date. Changes in fair value of loans held for sale are included in Net gains on loans held for sale at fair value in the Company’s consolidated statements of income.

Derivative Financial Instruments

Interest Rate Lock Commitments

The Company categorizes IRLCs as “Level 3” fair value assets or liabilities. The Company estimates the fair value of IRLCs based on quoted Agency MBS prices, its estimate of the fair value of the MSRs it expects to receive in the sale of the loans and the probability that the loans will fund or be purchased (the “pull-through rate”).

The significant unobservable inputs used in the fair value measurement of the Company’s IRLCs are the pull-through rate and the MSR component of the Company’s estimate of the fair value of the mortgage loans it has committed to purchase. Significant changes in the pull-through rate or the MSR component of the IRLCs, in isolation, could result in significant changes in the IRLCs’ fair value measurement. The financial effects of changes in these inputs are generally inversely correlated as increasing interest rates have a positive effect on the MSR component of IRLC fair value, but increase the pull-through rate for the loan principal and interest payment cash flow component, which has decreased in fair value. Initial recognition and changes in fair value of IRLCs are included in Net gains on loans acquired for sale at fair value in the consolidated statements of income.

Following is a quantitative summary of key unobservable inputs used in the valuation of IRLCs:


	December 31,
	2022		2021
Fair value (in thousands) (1)	$	25,844	$	322,193
Key inputs (2):
Pull-through rate:
Range		10.3% – 100%		8.0% – 100%
Weighted average		82.8%		78.4%
Mortgage servicing rights fair value expressed as:
Servicing fee multiple:
Range		(1.3) – 7.7		(8.5) – 6.7
Weighted average		4.3		3.8
Percentage of loan commitment amount
Range		(0.2)% – 3.8%		(1.6)% – 3.6%
Weighted average		2.0%		1.5%

(1)	For purposes of this table, the IRLC assets and liability positions are shown net.

(2)	Weighted average inputs are based on the committed amounts.

Hedging Derivatives

Hedging derivatives that are actively traded on exchanges are categorized by the Company as “Level 1” fair value assets and liabilities. Hedging derivatives whose fair values are based on observable MBS prices or interest rate volatilities in the MBS market are categorized as “Level 2” fair value assets and liabilities.

Changes in the fair value of hedging derivatives are included in Net gains on loans acquired for sale at fair value, or Net loan servicing fees – Mortgage servicing rights hedging results, as applicable, in the consolidated statements of income.

Mortgage Servicing Rights

MSRs are categorized as “Level 3” fair value assets. The Company uses a discounted cash flow approach to estimate the fair value of MSRs. The key inputs used in the estimation of the fair value of MSRs include the applicable prepayment rate (prepayment speed), pricing spread (discount rate), and annual per-loan cost to service the underlying loans, all of which are unobservable. Significant changes to any of those inputs in isolation could result in a significant change in the MSR fair value measurement. Changes in these key inputs are not directly related. Changes in the fair value of MSRs are included in Net loan servicing fees—Change in fair value of mortgage servicing rights and mortgage servicing liabilities in the consolidated statements of income.

Following are the key inputs used in determining the fair value of MSRs received by the Company when it retains the obligation to service the mortgage loans it sells:


	Year ended December 31,
	2022	2021	2020

	(Amount recognized and unpaid principal balance of underlying mortgage loans amounts in thousands)
Amount recognized	$1,718,094	$1,861,949	$1,138,045
Pool characteristics:
Unpaid principal balance of underlying loans	$83,569,657	$138,319,425	$96,571,835
Weighted average servicing fee rate (in basis points)	44	34	35
Key inputs (1):
Annual total prepayment speed (2):
Range	5.1% – 23.4%	6.1% – 31.4%	7.2% – 49.8%
Weighted average	9.4%	8.6%	11.9%
Equivalent average life (in years):
Range	3.7 – 9.4	3.0 – 9.2	1.5 – 9.1
Weighted average	8.1	8.1	6.7
Pricing spread (3):
Range	5.5% – 16.1%	6.0% – 16.9%	6.8% – 18.1%
Weighted average	7.8%	8.8%	9.4%
Annual per-loan cost of servicing:
Range	$71 – $177	$80 – $117	$77 – $117
Weighted average	$104	$103	$102

(1)	Weighted average inputs are based on UPB of the underlying loans.

(2)	Annual total prepayment speed is measured using Life Total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is provided as supplementary information.

(3)

Pricing spread represents a margin that is applied to a reference interest rate’s forward rate curve to develop periodic discount rates. Effective January 1, 2022, the Company applies a pricing spread to the United States Treasury (“Treasury”) Securities yield curve for purposes of discounting cash flows relating to MSRs. Through December 31, 2021, the Company applied its pricing spread to the United States Dollar London Interbank Offered Rate (“LIBOR”)/swap curve. The change in reference interest rate from the LIBOR/swap curve to the Treasury yield curve did not have a significant effect on the Company’s fair value measurement of MSRs.

Following is a quantitative summary of key inputs used in the valuation of the Company’s MSRs at year end and the effect on the fair value from adverse changes in those inputs:


	December 31,
	2022	2021

	(Fair value, unpaid principal balance of underlying mortgage
	loans and effect on fair value amounts in thousands)
Fair value	$ 5,953,621	$ 3,878,078
Pool characteristics:
Unpaid principal balance of underlying loans	$ 314,567,639	$ 278,324,780
Weighted average note interest rate	3.4%	3.2%
Weighted average servicing fee rate (in basis points)	36	34
Key inputs (1):
Annual total prepayment speed (2):
Range	5.0% – 17.7%	7.9% – 26.7%
Weighted average	7.5%	10.7%
Equivalent average life (in years):
Range	3.7 – 9.3	3.1 – 7.7
Weighted average	8.4	6.8
Effect on fair value of (3):
5% adverse change	($77,346)	($80,109)
10% adverse change	($152,192)	($157,252)
20% adverse change	($294,872)	($303,259)
Pricing spread (4):
Range	4.9% – 14.3%	5.3% – 15.5%
Weighted average	6.5%	7.7%
Effect on fair value of (3):
5% adverse change	($81,021)	($59,577)
10% adverse change	($159,863)	($117,352)
20% adverse change	($311,329)	($227,791)
Per-loan annual cost of servicing:
Range	$68 – $144	$79 – $197
Weighted average	$109	$108
Effect on fair value of (3):
5% adverse change	($41,263)	($32,979)
10% adverse change	($82,527)	($65,958)
20% adverse change	($165,053)	($131,916)

(1)	Weighted average inputs are based on UPB of the underlying loans.

(2)	Annual total prepayment speed is measured using Life Total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is provided as supplementary information.

(3)

These sensitivity analyses are limited in that they were performed as of a particular date; only contemplate the movements in the indicated inputs; do not incorporate changes to other inputs; are subject to the accuracy of the models and inputs used; and do not incorporate other factors that would affect the Company’s overall financial performance in such events, including operational adjustments made to account for changing circumstances. For these reasons, these estimates should not be viewed as earnings forecasts.

(4)

Effective January 1, 2022, the Company applies a pricing spread to the Treasury yield curve for purposes of discounting cash flows relating to MSRs. Through December 31, 2021, the Company applied its pricing spread to the United States Dollar LIBOR/swap curve. The change in reference interest rate from the LIBOR/swap curve to the Treasury yield curve did not have a significant effect on the Company’s fair value measurement of MSRs.

Excess Servicing Spread Financing at Fair Value

ESS is categorized as a “Level 3” fair value liability. Because ESS is a claim to a portion of the cash flows from MSRs, the Company’s approach to fair value measurement of ESS is similar to that of MSRs. The Company uses the same discounted cash flow approach to measuring ESS as it uses to measure MSRs except that certain inputs relating to the cost to service the mortgage loans underlying the MSRs and certain ancillary income are not included as these cash flows do not accrue to the holder of ESS.

The key inputs used in the estimation of ESS fair value include pricing spread (discount rate) and prepayment speed. Significant changes to either of those inputs in isolation could result in a significant change in the fair value of ESS. Changes in these key inputs are not necessarily directly related.

ESS is generally subject to fair value increases when mortgage interest rates increase. Increasing mortgage interest rates normally discourage mortgage refinancing activity. Decreased refinancing activity increases the life of the mortgage loans underlying the ESS, thereby increasing its fair value. Changes in the fair value of ESS are included in Net loan servicing fees—Change in fair value of excess servicing spread payable to PennyMac Mortgage Investment Trust. During the quarter ended March 31, 2021, the Company repaid its outstanding ESS financing payable to PMT.

Mortgage Servicing Liabilities

MSLs are categorized as “Level 3” fair value liabilities. The Company uses a discounted cash flow approach to estimate the fair value of MSLs. The key inputs used in the estimation of the fair value of MSLs include the applicable pricing spread, annual total prepayment speed, and the per-loan annual cost of servicing the underlying loans. Changes in the fair value of MSLs are included in Net servicing fees—Change in fair value of mortgage servicing rights and mortgage servicing liabilities in the consolidated statements of income.

Following are the key inputs used in determining the fair value of MSLs:


	December 31,
		2022		2021
Fair value (in thousands)	$	2,096	$	2,816
Pool characteristics:
Unpaid principal balance of underlying loans (in thousands)	$	33,157	$	60,593
Servicing fee rate (in basis points)		25		25
Key inputs (1):
Annual total prepayment speed (2)		17.2%		19.8%
Equivalent average life (in years)		4.9		4.1
Pricing spread (3)		7.8%		6.9%
Per-loan annual cost of servicing	$	1,177	$	1,406

(1)	Weighted average inputs are based on UPB of the underlying mortgage loans.

(2)	Annual total prepayment speed is measured using Life Total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is provided as supplementary information.

(3)

Effective January 1, 2022, the Company applies a pricing spread to the Treasury yield curve for purposes of discounting cash flows relating to MSLs. Through December 31, 2021, the Company applied its pricing spread to the United States Dollar London LIBOR/swap curve. The change in reference interest rate from the LIBOR/swap curve to the Treasury yield curve did not have a significant effect on the Company’s fair value measurement of MSLs.