Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2020

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments on September 30, 2020 and December 31, 2019. Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.


	Quarter Ended September 30, 2020				Year Ended December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(in thousands)
Financial assets
Cash and cash equivalents	$	115,153	$	115,153	$	7,676	$	7,676
Restricted cash	2,613		2,613		2,222		2,222
Accounts receivable	3,392		3,392		3,767		3,767
Interest Rate Swaps (Other non-current assets)	—		—		9		9
Total	$	121,158	$	121,158	$	13,674	$	13,674
Financial liabilities
Notes payable	$	158,814	$	158,814	$	3,313	$	3,313
Accounts payable	2,283		2,283		1,337		1,337
Accrued expenses	1,409		1,409		2,006		2,006
Income tax payable	544		544		—		—

Total	$	163,050	$	163,050	$	6,656	$	6,656

The fair value of the financial instruments shown in the table above as of September 30, 2020 and December 31, 2019 represent the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between the market participants at that date. Those fair value measurements maximize the use of observable and unobservable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing asset or liability. Those judgments are developed by the Company based on the best information available in the circumstances, including expected cash flows and appropriately risk-adjusted discount rates, available observable and unobservable inputs.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

•Cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and income tax payable.The carrying amounts approximate fair value because of the short maturity of these instruments.

•Restricted cash: Restricted cash relates to deposits held on behalf of insurance partners to settle insurance claims. The carrying amount of restricted cash approximates fair value because of the short maturity of this instrument.

•Interest rate swaps: The fair value is calculated as the present value of the estimated future cash flows. Estimates of future floating-rate cash flows are based on quoted swap rates, futures prices and interbank borrowing rates. Estimated cash flows are discounted using a yield curve constructed using a yield curve constructed from similar sources and which reflects the relevant benchmark interbank rate used by market participants for this purpose when pricing interest rate swaps. The fair value estimate is subject to a credit risk adjustment that reflects the credit risk of the Company and of the counterparty; this is calculated based on credit spreads derived from current credit default swap or bond prices. The Company’s interest rate swap was settled in March of 2020.

•Notes payable: the carrying amount of the Company’s debt approximates its fair value due to its variable interest rate that is tied to the current LIBOR rate plus an applicable spread and consistency in our credit ratings.

Fair Value Hierarchy

The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis (including items that are required to be measured at fair value) at September 30, 2020 and December 31, 2019.


			Fair value measurements at reporting date using
	September 30, 2020		Level 1		Level 2		Level 3
	(in thousands)
Liabilities:

Notes payable	$	158,814	$	—	$	158,814	$	—
Total	$	158,814	$	—	$	158,814	$	—


			Fair value measurements at reporting date using
	December 31, 2019		Level 1		Level 2		Level 3
	(in thousands)
Assets:
Interest rate swaps	$	9	$	—	$	9	$	—
Total	$	9	$	—	$	9	$	—
Liabilities:
Notes payable	$	3,313	$	—	$	3,313	$	—
Total	$	3,313	$	—	$	3,313	$	—

The Company’s accounting policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of any level for the periods ended September 30, 2020 and December 31, 2019.

The Company does not have any long-lived asset which is being measured at fair value on a recurring basis.

- 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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