Quarterly report pursuant to Section 13 or 15(d)

Fair Value

v3.19.1
Fair Value
3 Months Ended
Mar. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value FAIR VALUE


The following is a description of the valuation methodology used for the warrants issued to Goldman Sachs Specialty Lending Group, L.P. ("GS") and contingent consideration issued in business combinations, which were recorded and remeasured at fair value at the end of each reporting period.


GS Warrants

In connection with the GS Credit Agreement, warrants issued by Holdings to GS for the purchase of Holdings' Class A common units (each, a "GS Warrant" and collectively, the "GS Warrants") were issued, canceled, and replaced at various times in 2018 and prior years. During the first quarter of 2018, a GS Warrant for the purchase of 1.8% of Holdings' outstanding Class A common units was replaced by a GS Warrant to purchase of 2.2% of Holdings' Class A Common units. This new GS Warrant had a term of 7 years, an exercise price of $0, and could be exercised at any time prior to expiration date. Since the obligation was based solely on the fact that the 2.2% interest in the equity of Holdings was fixed and known at inception as well as the fact that GS could exercise the GS Warrant with a settlement in cash any time prior to the expiration date of December 31, 2023, the outstanding GS Warrant was required to be recorded as a liability. At March 31, 2018, the outstanding GS Warrant had a fair value of $12.2 million. A $3.5 million increase in the fair value of the GS Warrant for the quarter ended March 31, 2018 is included in Other, net in the accompanying unaudited condensed consolidated statements of operations. The GS Warrant was redeemed in full on July 25, 2018.

The GS Warrants were classified as level 3 in the fair value hierarchy. The fair value of the GS warrants was estimated based on the fair value of Holdings using a weighted-average of values derived from generally accepted valuation techniques, including market approaches, which consider the guideline public company method, the guideline transaction method, the recent funding method, and an income approach, which considered discounted cash flows.


Contingent Consideration Issued in 2018 Business Combinations

The estimated fair values of contingent consideration related to the Priority Payment Systems Tech Partners and Priority Payment Systems Northeast business acquisitions are based on a weighted payout probability at the measurement date, which falls within Level 3 on the fair value hierarchy. Both of these acquisitions occurred during the third quarter of 2018. At March 31, 2019 and December 31, 2018, the total fair value of the contingent consideration for both acquisitions was approximately $1.0 million, which was not materially different than the fair values on their original measurement dates.

The following table shows a reconciliation of the beginning and ending balances for liabilities measured at fair value on a recurring basis using significant unobservable inputs that were classified as Level 3 in the fair value hierarchy for the quarters ended March 31, 2019 and 2018:

(in thousands)
 
 
 
 
 
 
Contingent Consideration
 
Warrant Liability
 
 
 
 
 
Balance at January 1, 2018
 
$

 
$
8,701

Extinguishment of GS 1.8% warrant liability
 

 
(8,701
)
GS 2.2% warrant liability
 

 
12,182

Balance at March 31, 2018
 
$

 
$
12,182

 
 
 
 
 
Balance at January 1, 2019
 
$
980

 
$

Fair value adjustments
 

 

Balance at March 31, 2019
 
$
980

 
$




There were no transfers among the fair value levels during the quarters ended March 31, 2019 and 2018.


Fair Value of Debt

The Borrower's outstanding debt obligations (see Note 7, Long-Term Debt) are reflected in the Company's consolidated balance sheets at carrying value since the Company did not elect to remeasure debt obligations to fair value at the end of each reporting period. The carrying values of the long-term debt approximate fair value due to mechanisms in the credit agreements that adjust the applicable interest rates.