Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

Fair Value Measurements
12 Months Ended
Dec. 31, 2016
Fair Value Disclosures [Abstract]  
Fair Value Measurements

3. Fair Value Measurements

Under GAAP, 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.  The fair value of an asset should reflect its highest and best use by market participants, whether using an in-use or an in-exchange valuation premise.  The fair value of a liability should reflect the risk of nonperformance, which includes, among other things, the Company’s credit risk.

Valuation techniques are generally classified into three categories: the market approach; the income approach; and the cost approach.  The selection and application of one or more of these techniques requires significant judgment and is primarily dependent upon the characteristics of the asset or liability, the principal (or most advantageous) market in which participants would transact for the asset or liability and the quality and availability of inputs.  Inputs to valuation techniques are classified as either observable or unobservable within the following hierarchy:


Level 1 – quoted prices in active markets for identical assets or liabilities.


Level 2 – inputs other than quoted prices that are observable for an asset or liability.  These include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).


Level 3 – unobservable inputs that reflect our expectations about the assumptions that market participants would use in measuring the fair value of an asset or liability.

The following table presents the fair value of our long-term debt (in thousands):




December 31,










11.00% 1.5 Lien Term Loan, due November 2019

Level 2








9.00 % Second Lien Term Loan, due May 2020

Level 2









9.00%/10.75% Second Lien PIK Toggle Notes, due May 2020

Level 2








8.50%/10.00% Third Lien PIK Toggle Notes due June 2021

Level 2








8.50% Unsecured Senior Notes, due June 2019

Level 2









The fair value of long-term debt is based on quoted prices, although the market is not an active market; therefore, the fair value is classified within Level 2.  An exception is the fair value of the 1.5 Lien Term Loan, which is held by one entity, and was not traded since its inception in September 2016.  As the 1.5 Lien Term Loan was recently executed, the fair value was assumed to be the carrying value, excluding amounts recorded for future interest payments.  

As of December 31, 2016, there were no open derivatives financial instruments.  As of December 31, 2015, the carrying value of our open derivative financial instruments equaled the estimated fair value.  We measure the fair value of our derivative financial instruments by applying the income approach, using models with inputs that are classified within Level 2 of the valuation hierarchy.  The inputs used for the fair value measurement of our derivative financial instruments are the exercise price, the expiration date, the settlement date, notional quantities, the implied volatility, the discount curve with spreads and published commodity futures prices.  

The carrying value of our long-term debt is disclosed in Note 2 above.  For additional information about our derivative financial instruments, refer to Note 8.