|9 Months Ended|
Sep. 30, 2022
|Derivative Instruments and Hedging Activities Disclosure [Abstract]|
NOTE 13 – Derivative Instruments
In June and September 2022, a total of 1,635,936 Private Placement Warrants were exercised on cashless basis at an exercise price of $11.50 per share in exchange for a total of 695,124 shares of Class A Common Stock. As of September 30, 2022, 5,135,064 Private Placement Warrants remain outstanding, and each is exercisable to purchase one share of Class A Common Stock or, in certain circumstances, one Class A Opco Unit and corresponding share of Class B Common Stock. The Private Placement Warrants expire on September 15, 2026, or earlier upon redemption or liquidation. Private Placement Warrants are nonredeemable so long as they are held by the initial purchasers or their permitted transferees. The outstanding Private Placement Warrants continue to be held by the initial purchasers or their permitted transferees as of September 30, 2022. See “Note 21 - Subsequent Events” for the effects of the Merger on the Private Placement Warrants.
The Private Placement Warrants contain exercise and settlement features that preclude them from being classified within stockholders’ equity, and therefore are recognized as derivative liabilities. The Company recognizes the warrant instruments as liabilities at fair value with changes in fair value included within gain (loss) on warrants and derivative contracts in the Company’s consolidated statements of operations. Derivative warrant liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities.
The fair value of the Private Placement Warrants is estimated using the Black-Scholes option pricing model (a Level 3 measurement).
The Company used the following assumptions to estimate the fair value of the Private Placement Warrants:
The change in the fair value of the warrant liabilities is recognized in gain (loss) on warrants and derivative contracts in the consolidated statement of operations. The changes in the warrant liabilities for the nine months ended September 30, 2022 are as follows:
Natural Gas Swap
In conjunction with the Business Combinations, the Company assumed a natural gas variable to fixed priced swap agreement entered into by Aria. The Company is the fixed price payer under the swap agreement that provides for monthly net settlements through the termination date of June 30, 2023. The agreement was intended to manage the risk associated with changing commodity prices. The agreement has a remaining notional of 163,800 MMBtu as of September 30, 2022.
Changes in the fair values and realized gains (losses) for the natural gas swap are recognized in gain (loss) on warrants and derivative contracts in the consolidated statement of operations. Valuation of the natural gas swap was calculated by discounting future net cash flows that were based on a forward price curve for natural gas over the remaining life of the contract (a Level 2 measurement), with an adjustment for each counterparty’s credit rate risk.
Interest Rate Swap
In December 2021, the Company entered into an interest rate swap (the “2021 Swap”) with a three-year term for a notional amount beginning at $109.3 million and declining over the term. The 2021 Swap locked in payments of a fixed interest rate of 1.094% in exchange for a floating interest rate that resets monthly based on LIBOR. As discussed in “Note 10 - Debt,” the Company amended its Revolving Credit and Term Loan Agreement to increase the Term Loan commitment to $400 million on June 30, 2022. The 2021 Swap was terminated effective September 16, 2022 as it no longer met the requirements of the amended Revolving Credit and Term Loan Agreement, and the Company received a termination payment of $6.3 million to settle the fair value of the related derivative asset at the termination date. Concurrently, the Company entered into a new interest rate swap (the “2022 Swap”) with a three-year term for a notional amount beginning at $198.8 million as of September 1, 2022 and declining over the term to $171.3 million at the termination date. The 2022 Swap locked in payments of a fixed interest rate of 3.774% in exchange for a floating interest rate that resets monthly based on SOFR.
The 2021 Swap and 2022 Swap are not designated as hedging instruments, and net gains and losses are recognized currently in gain (loss) on warrants and derivative contracts.
The following summarizes the balance sheet classification and fair value of the Company’s derivative instruments as of September 30, 2022 and December 31, 2021:
The following table summarizes the income statement effect of gains and losses related to warrants and derivative instruments for the three and nine months ended September 30, 2022 and 2021:
The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef