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FAIR VALUE MEASUREMENTS

3 Months Ended

Mar. 31, 2024

8. FAIR VALUE MEASUREMENTS

The Company measures certain assets and liabilities at fair value on a recurring or non-recurring basis in certain circumstances. Fair value is defined as the price 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. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:

Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

The Company uses observable market data when determining fair value whenever possible and relies on unobservable inputs only when observable market data is not available.

Recurring Fair Value Measurements

In October 2023, the Company entered into an energy forward purchase contract to fix a specified component of the energy price related to forecasted energy purchases at the Cottonwood 1 facility from November 1, 2023 through May 31, 2024 (the “Energy Derivatives”). The Energy Derivatives are recognized as derivatives in accordance with ASC 815 initially and subsequently measured at fair value with changes in value reflected in Net income (loss). At March 31, 2024 observable Level 2 inputs, such as forward energy prices and discount rates, were available for the energy forward purchase contract.

The CVRs, GUC CVRs and Warrants are recognized as derivative liabilities in accordance with ASC 815 initially and subsequently measured at fair value with changes in value reflected in Net income (loss). When these instruments were recognized on the Effective Date, observable market data was not available. At March 31, 2024 observable Level 1 market data was available for the CVRs and Warrants.

The following presents the levels of the fair value hierarchy for the Company's derivatives measured at fair value on a recurring basis as of March 31, 2024 (in thousands):


	March 31, 2024
	Fair value hierarchy
	Level 1		Level 2		Level 3		Fair value
Energy derivatives liability:
Energy derivatives	$	—	$	1,465	$	—	$	1,465
Total energy derivatives liability	—		1,465		—		1,465
Contingent value rights liabilities:
Contingent value rights	41,427		—		—		41,427
GUC contingent value rights	—		—		3,174		3,174
Total contingent value rights liabilities	41,427		—		3,174		44,601
Warrants liability:
Warrants	327,465		—		—		327,465
Total warrants liability	327,465		—		—		327,465
Total liabilities measured at fair value on a recurring basis	$	368,892	$	—	$	3,174	$	372,066

Level 2 Recurring Fair Value Measurements

The following table summarizes the fair value of the energy forward purchase contract on the Company’s Consolidated Balance Sheets (in thousands):


		Fair Value (Level 2)
	Financial statement line item	March 31, 2024		December 31, 2023
Energy forward purchase contract	Accrued expenses and other current liabilities	$	1,465	$	2,262

The Company recorded the following gains/(losses) related to the energy forward purchase contract on the Company’s Consolidated Statements of Operations (in thousands):


		Three Months Ended March 31,
	Financial statement line item	2024		2023
Energy forward purchase contract	Change in fair value of energy derivatives	$	(2,218)	$	—

Level 3 Recurring Fair Value Measurements

The following presents a rollforward of the activity for the GUC CVRs liability measured at fair value on a recurring basis using Level 3 inputs as of March 31, 2024 (in thousands):


	GUC CVRs (Level 3)
Balance at December 31, 2023	$	—
Issuances	3,950


Unrealized gains	(776)
Balance at March 31, 2024	$	3,174

The CVRs and warrants had no balance at December 31, 2023, on the Effective Date they were measured using Level 3 inputs as no market existed for them at that time. Since the Effective Date active markets have developed for those instruments and the Company uses Level 1 quoted market prices for their valuation at March 31, 2024.

All transfers into and out of Level 3 are assumed to occur at the beginning of the quarterly reporting period in which they occur. As of December 31, 2023, there were no Level 3 financial instruments.

The fair value of the GUC CVRs was estimated using simulated Company stock price paths in a Monte Carlo simulation model. The inputs into the simulation model are similar to those used in Black-Scholes option models. They include the Company’s stock price and dividend yield, risk-free rate, term and estimated volatility. The estimated volatility is considered to be a significant unobservable input into the simulation model. At March 31, 2024, the valuation technique has not changed during the period since the Effective Date.

The following presents significant Level 3 unobservable inputs used to measure the fair value of GUC CVRs as of March 31, 2024 (dollars in thousands):


	Fair value		Unobservable Input	Measure
GUC contingent value rights	$	3,174	Estimated Volatility	120.0	%

There is inherent uncertainty in an estimate of fair value from the use of significant unobservable inputs. An increase in the estimated volatility used in the model would be expected to increase the fair value of the GUC CVRs.

Nonrecurring fair value measurements

The Company’s non-financial assets, including property, plant and equipment, and intangible assets are measured at estimated fair value on a nonrecurring basis. These assets are adjusted to fair value only when an impairment is recognized, or the underlying asset is held for sale.

No non-financial assets were classified as Level 3 as of March 31, 2024 or December 31, 2023.

Fair value of financial instruments

The Company’s financial instruments, that are not subject to recurring fair value measurements, include cash and cash equivalents, restricted cash, accounts receivable, net, accounts payable, leases, notes payable and certain accrued expenses and other liabilities. Except for the Convertible Notes, the carrying amount of these financial instruments materially approximate their fair values. At March 31, 2024 the fair value of the Convertible Notes using Level 1 active market price was $230.4 million.

- 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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