Quarterly report pursuant to Section 13 or 15(d)

Fair Value Considerations

v3.21.2
Fair Value Considerations
 6 Months Ended
Jun. 30, 2021
Fair Value Disclosures [Abstract]  
Fair Value Considerations Fair Value Considerations
Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy defines a three-level valuation hierarchy for classification and disclosure of fair value measurements as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company classifies cash equivalents and investments according to the hierarchy of techniques used to determine fair value based on the types of inputs.  The Company has elected the Fair Value Option for all investments in debt securities.
On June 30, 2020, the Company entered into the Oberland Facility (See Note - 10 Long-Term Debt), and concluded that the term debt instrument included certain embedded features that required separate accounting (the “Debt Derivative Liability”) and that the equity contract entered into concurrently was required to be classified as a liability and recorded at its fair value. These instruments were determined to be financial liabilities requiring Level 3 fair value measurements.
The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2021:
(Level 1) (Level 2) (Level 3) Total
June 30, 2021
Assets:
Money market funds $ 31,496  $ —  $ —  $ 31,496 
U.S. government securities 12,059  —  —  12,059 
Commercial paper —  34,780  —  34,780 
Total assets $ 43,555  $ 34,780  $ —  $ 78,335 
Liabilities
Oberland facility $ —  — $ 50,663  $ 50,663 
Debt derivative liabilities —  — 3,776  3,776 
Total liabilities $ —  $ —  $ 54,439  $ 54,439 
(Level 1) (Level 2) (Level 3) Total
December 31, 2020
Assets:
Money market funds $ 23,044  $ —  $ —  $ 23,044 
U.S. government securities 12,123  —  —  12,123 
Corporate bonds —  6,408  —  6,408 
Commercial paper —  36,668  —  36,668 
Total assets $ 35,167  $ 43,076  $ —  $ 78,243 
Liabilities
Oberland facility —  — 36,855  36,855 
Debt derivative liabilities —  — 2,497 2,497
Total liabilities $ —  $ —  $ 39,352  $ 39,352 
Oberland Facility

The Company estimates the fair value of long-term debt under the Oberland Facility using a discounted cash flow analysis and rates being offered for similar loans to borrowers with similar credit ratings. The discounted cash flow model uses unobservable inputs, including estimates of discount rates and loan prepayments. Both tranches of the Oberland Facility are classified as Level 3. The estimated fair value of the Company’s long-term debt under the Oberland Facility was $50,663 and $36,855, at June 30, 2021 and December 31, 2020, respectively (See Note 10 - Long-Term Debt).
Debt Derivative Liabilities
The Debt Derivative Liabilities are measured using a ‘with and without’ valuation model to compare the fair value of the Oberland Facility including the identified embedded derivative features and the fair value of a plain vanilla note with the same terms. The fair value of the Oberland Facility including the embedded derivative features was determined using a probability-weighted expected return model based on four potential settlement scenarios for the Oberland Facility due to a mandatory prepayment event between January 1, 2024 and the respective maturity dates of June 30, 2027 and June 30, 2028 for the first and second tranche, respectively; (a) the prepayment of the Oberland Facility at the Company’s option; and (b) the repayment of the Oberland Facility at its maturity in accordance with the terms of the debt agreement. The estimated settlement value of each scenario, which would include any required make-whole payment (See Note 10 - Long-Term Debt) is then discounted to present value using a discount rate that is derived based on the initial terms of the Oberland Facility at issuance and corroborated utilizing a synthetic credit rating analysis.
The significant inputs that are included in the valuation of the Debt Derivative Liability - first tranche include:
June 30, 2021 December 31, 2020
Input
Remaining term (years) 6 6.50
Maturity date June 30, 2027 June 30, 2027
Coupon rate 9.50  % 9.50  %
Revenue participation payments Maximum each year Maximum each year
Discount rate 8.65  % (1) 8.70  % (1)
Probability of mandatory prepayment before 2024 5.0  % (1) 5.0  % (1)
Estimated timing of mandatory prepayment event before 2024 December 31, 2023 (1) December 31, 2023 (1)
Probability of mandatory prepayment 2024 or after 15.0  % (1) 15.0  % (1)
Estimated timing of mandatory prepayment event 2024 or after March 31, 2026 (1) March 31, 2026 (1)
Probability of optional prepayment event 5.0  % (1) 5.0  % (1)
Estimated timing of optional prepayment event December 31, 2025 (1) December 31, 2025 (1)
(1)Represents a significant unobservable input
The significant inputs that are included in the valuation of the Debt Derivative Liability - second tranche include:
June 30, 2021
Input
Remaining term (years) 7
Maturity date June 30, 2028
Coupon rate 9.50  %
Revenue participation payments Maximum each year
Discount rate 11.21  % (1)
Probability of mandatory prepayment before 2024 5.0  % (1)
Estimated timing of mandatory prepayment event before 2024 December 31, 2023 (1)
Probability of mandatory prepayment 2024 or after 15.0  % (1)
Estimated timing of mandatory prepayment event 2024 or after March 31, 2026 (1)
Probability of optional prepayment event 5.0  % (1)
Estimated timing of optional prepayment event December 31, 2025 (1)
(1)Represents a significant unobservable input
There were no changes in the levels or methodology of the measurement of financial assets or liabilities during the three and six months ended June 30, 2021.  The maturity dates of the Company’s investments are less than one year.
The following represents the rollforward of the fair value of instruments classified as Level 3 measurements for the three and six months ended June 30, 2021:
Quarter Ending June 30, 2021
Beginning Balance, April 1, 2021 $ 39,205 
Addition of Oberland Facility - second tranche 13,827 
Addition of debt derivative - second tranche 1,173 
Change in fair value of Oberland Facility 150 
Change in fair value of debt derivative 84 
Ending Balance, June 30, 2021 $ 54,439 
Six Months Ending June 30, 2021
Beginning Balance, January 1, 2021 $ 39,352 
Addition of Oberland Facility - second tranche 13,827 
Addition of debt derivative - second tranche 1,173 
Change in fair value of Oberland Facility (18)
Change in fair value of debt derivative 105 
Ending Balance, June 30, 2021 $ 54,439