FAIR VALUE OF FINANCIAL INSTRUMENTS

12 Months Ended

Jun. 30, 2020

Financial assets and liabilities are initially recorded at fair value. The carrying amounts of certain of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued expenses, are carried at cost which approximates fair value due to the short-term maturity of these instruments and are Level 1 assets or liabilities of the fair value hierarchy.

The Company's embedded derivative liability was measured at fair value using a probability-weighted discounted cash flow model and was classified as a Level 3 liability of the fair value hierarchy due to the use of significant unobservable inputs. The liability was included as a component of Accrued expenses on the consolidated balance sheets and subject to remeasurement to fair value at the end of each reporting period. For the year ended June 30, 2020, the Company recognized the change as a component of Interest expense in its consolidated statements of operations. The assumptions used in the discounted cash flow model of the embedded derivative liability include: (1) management's estimates of the probability and timing of future cash flows and related events which was estimated to be 100% as of June 30, 2020; (2) the Company's risk-adjusted discount rate that includes a company-specific risk premium; and (3) the Company's cost of debt.

There were no transfers between Level 1, Level 2, and Level 3 during the periods presented. The following table provides a reconciliation for the opening and closing balances of the embedded derivative liability from October 31, 2019 to June 30, 2020:



($ in millions)
Balance at October 31, 2019	$	1.5
Net change in fair value	—
Balance at December 31, 2019	1.5
Net change in fair value	(1.1		)
Balance at March 31, 2020	0.4
Net change in fair value	0.4
Balance at June 30, 2020	$	0.8

The Company’s obligations under its long-term debt agreements are carried at amortized cost, which approximates their fair value as of June 30, 2019. The fair value of the Company’s obligations under its long-term debt agreements with JPMorgan Chase as of June 30, 2019 were considered Level 2 liabilities of the fair value hierarchy because these instruments have interest rates that reset frequently. As of June 30, 2020, the Company was in active negotiations to refinance its 2020 Antara Term Facility, which were successfully completed on August 14, 2020. At June 30, 2020, the fair value of the Company’s obligations under its 2020 Antara Term Facility was approximately $15.8 million, which approximates the face value of the debt plus the prepayment premium discussed in Note 12, and considered a Level 3 liability of the fair value hierarchy because this instrument used significant unobservable inputs consistent with those used in determining the embedded derivative liability values.

- 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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