22. Fair Value Measurement

Fair value is defined as the price that would be received on the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

There are three main valuation techniques to measure the fair value of assets and liabilities: the market approach, the income approach and the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The income approach uses financial models to convert future amounts to a single present amount and includes present value and option-pricing models. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset and is often referred to as current replacement cost.

The accounting guidance for fair value measurements defines an input fair value hierarchy that has three broad levels and gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The input fair value hierarchy is summarized below:

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

Level 2: Unadjusted quoted prices in active markets for similar assets or liabilities, 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: Unobservable inputs for the asset or liability

There were no material assets or liabilities measured at fair value on a recurring or nonrecurring basis in the Company’s consolidated financial statements as of December 31, 2019 and 2018.

Financial Disclosures about Fair Value of Financial Instruments

The tables below set forth information related to the Company’s consolidated financial instruments (in thousands):



					Fair Value Measurements Using
					Quoted prices
	Carrying				in Active		Significant
	Amount		Fair Value		Markets		Other		Significant
	As of		As of		for Identical		Observable		Unobservable
	December 31,		December 31,		Assets		Inputs		Inputs
	2019		2019		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	356,604		356,604		356,604		—		—
Restricted cash		50,266		50,266		50,266		—		—
Notes receivable, net		449,162		587,000		—		—		587,000
Financial liabilities:
Receivable-backed notes payable	$	422,815		440,900		—		—		440,900
Notes payable and other borrowings		188,731		194,069		—		—		194,069
Junior subordinated debentures		137,254		146,000		—		—		146,000



					Fair Value Measurements Using
					Quoted prices
	Carrying				in Active		Significant
	Amount		Fair Value		Markets		Other		Significant
	As of		As of		for Identical		Observable		Unobservable
	December 31,		December 31,		Assets		Inputs		Inputs
	2018		2018		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	366,305		366,305		366,305		—		—
Restricted cash		54,792		54,792		54,792		—		—
Notes receivable, net		439,167		537,000		—		—		537,000
Financial liabilities:
Receivable-backed notes payable	$	458,931		462,400		—		—		462,400
Notes payable and other borrowings		200,887		203,547		—		—		203,547
Junior subordinated debentures		136,425		132,400		—		—		132,400
Redeemable 5% cumulative preferred stock		9,472		9,538		—		—		9,538

Management has made estimates of fair value that it believes to be reasonable. However, because there is no active market for many of these financial instruments, the fair values of these financial instruments have been derived using the income approach technique with Level 3 unobservable inputs. Estimates used in net present value financial models rely on assumptions and judgments regarding issues in which the outcome is unknown, and actual results or values may differ significantly from these estimates. These fair value estimates do not consider the tax effect that would be associated with the disposition of the assets or liabilities at their fair value estimates. As such, the estimated value upon sale or disposition of the asset may not be received, and the estimated value upon disposition of the liability in advance of its scheduled maturity may not be paid.

The amounts reported in the consolidated statements of financial condition for cash and cash equivalents and restricted cash approximate fair value.

The fair values of Bluegreen’s notes receivable were measured using Level 3 inputs and are based on estimated future cash flows considering contractual payments and estimates of prepayments and defaults, discounted at a market rate.

The amounts reported in the consolidated statements of financial condition relating to Bluegreen’s notes payable and other borrowings, as well as Bluegreen’s receivable-backed notes payable, approximate fair value for indebtedness that provides for variable interest rates. The fair values of Bluegreen’s fixed rate, receivable-backed notes payable were measured using Level 3 inputs by discounting the net cash outflows estimated to be used to repay the debt. These obligations are to be satisfied using the proceeds from the consumer loans that secure the obligations.

The fair values of the Company’s Community Development Bonds, which are included in notes payable and other borrowings above, were measured using the market approach with Level 3 inputs obtained based on estimated market prices of similar financial instruments.

The fair values of the Company’s notes payable and other borrowings (other than Bluegreen’s notes payable and other borrowings and Community Development Bonds above) were measured using the income approach with Level 3 inputs by discounting the forecasted cash outflows associated with the debt using estimated market discount rates.

The fair values of the Company’s junior subordinated debentures were measured using the income approach with Level 3 by discounting the contractual cash outflows associated with the debt using estimated market discount rates or using the market approach based on market price quotes from the over-the-counter bond market.

The fair value of the Company’s 5% Cumulative Preferred Stock, which is subject to mandatory redemption, was measured using the income approach with Level 3 inputs by discounting the forecasted cash outflows using estimated market discount rates.