Financial Instruments |
6 Months Ended |
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Jun. 30, 2021 | |
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
| Financial Instruments |
NOTE 6 — FINANCIAL INSTRUMENTS
As part of entering into the 2018 Term Loan, which was repaid in full in April 2021 (see Note 9, Borrowings, for further information), we were required to enter into and maintain certain hedging transactions. As a result, we used derivative financial instruments, namely OTC commodity swap instruments (“commodity swaps”), to maintain compliance with that covenant. We do not hold or issue derivative financial instruments for trading purposes.
Commodity swap agreements involve payments to or receipts from counterparties based on the differential between two prices for the commodity and include basis swaps to protect earnings from undue exposure to the risk of geographic disparities in commodity prices, as was required by a negative covenant in the 2018 Term Loan. The fair value of our commodity swaps was classified as Level 2 in the fair value hierarchy and was based on standard industry income approach
models that use significant observable inputs, including but not limited to New York Mercantile Exchange (NYMEX) natural gas forward curves and basis forward curves, all of which were validated against external sources at least monthly.
We recognized all derivative instruments as either assets or liabilities at fair value on a net basis as they were with a single counterparty and subject to a master netting arrangement. In April 2021, we net settled our derivative instruments when we voluntarily repaid the 2018 Term Loan in full. See Note 9, Borrowings, for further information.
We did not apply hedge accounting for our commodity swaps; therefore, all changes in the fair value of our derivative instruments were recognized within Other income, net, in the Condensed Consolidated Statements of Operations. For the three and six months ended June 30, 2021, we recognized a realized loss of approximately $0.5 million and approximately $1.2 million, respectively, in our Condensed Consolidated Statements of Operations. Derivative contracts which result in physical delivery of a commodity expected to be used or sold by the Company in the normal course of business are designated as normal purchases and sales and are exempt from derivative accounting. OTC arrangements require settlement in cash. Settlements of commodity derivative instruments are reported as a component of cash flows from operations in the Condensed Consolidated Statements of Cash Flows.
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