Quarterly report pursuant to Section 13 or 15(d)

Assets and Liabilities Measured at Fair Value

v3.21.2
Assets and Liabilities Measured at Fair Value
9 Months Ended
Sep. 30, 2021
Assets and Liabilities Measured at Fair Value  
Assets and Liabilities Measured at Fair Value

(4)   Assets and Liabilities Measured at Fair Value

For assets and liabilities required to be reported at fair value, GAAP provides a hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs, other than quoted market prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability.

The Company's assets and liabilities measured at fair value are as follows:

Fair Value Measurements at

Fair Value Measurements at

 

September 30, 2021

December 31, 2020

 

    

    

Quoted

    

    

    

Quoted

    

 

prices

prices

 

in active

Significant

in active

Significant

 

markets for

other

markets for

other

 

identical

observable

identical

observable

 

assets

inputs

assets

inputs

 

Description

Total

(Level 1)

(Level 2)

Total

(Level 1)

(Level 2)

 

amounts in millions

 

Cash equivalents

$

260

 

260

 

 

290

 

290

 

Indemnification asset

$

394

394

345

345

Financial instrument asset

$

92

92

23

23

Debt

$

1,983

 

 

1,983

 

1,750

 

 

1,750

The majority of the Company's Level 2 financial assets and liabilities are primarily debt instruments and derivative instruments with quoted market prices that are not considered to be traded on "active markets," as defined in GAAP. The fair values for such instruments are derived from a typical model using observable market data as the significant inputs.

The indemnification asset relates to Liberty Broadband’s agreement to indemnify Liberty Interactive LLC (“LI LLC”) and pertains to the ability of holders of LI LLC’s 1.75% exchangeable debentures due 2046 (the “1.75% Exchangeable Debentures”) to exercise their exchange right according to the terms of the debentures on or before October 5, 2023. Such amount will equal the difference between the exchange value and par value of the 1.75% Exchangeable Debentures at the time the exchange occurs.  The indemnification asset recorded in the condensed consolidated balance sheets as of September 30, 2021 represents the fair value of the estimated exchange feature included in the 1.75% Exchangeable Debentures primarily based on market observable inputs (Level 2).  As of September 30, 2021, a holder of the 1.75% Exchangeable Debentures has the ability to exchange and, accordingly, such indemnification asset is included as a current asset in our condensed consolidated balance sheet as of that date.

Realized and Unrealized Gains (Losses) on Financial Instruments

Realized and unrealized gains (losses) on financial instruments are comprised of changes in the fair value of the following:

Three months ended

Nine months ended

 

September 30,

September 30,

 

    

2021

    

2020

    

2021

    

2020

 

amounts in millions

 

Equity securities

48

2

98

(2)

Exchangeable senior debentures

 

(50)

 

(145)

 

(183)

 

(225)

Indemnification asset

8

94

49

107

Other financial instruments

35

37

137

(7)

$

41

 

(12)

 

101

 

(127)

The Company has elected to account for its exchangeable debt using the fair value option. Changes in the fair value of the exchangeable senior debentures recognized in the condensed consolidated statement of operations are primarily due to market factors primarily driven by changes in the fair value of the underlying shares into which the debt is exchangeable. The Company isolates the portion of the unrealized gain (loss) attributable to the change in the instrument specific credit risk and recognizes such amount in other comprehensive earnings (loss).  The change in the fair value of the exchangeable senior debentures attributable to changes in the instrument specific credit risk was a loss of $16 million and a loss of $90 million for the three months ended September 30, 2021 and 2020, respectively, and a loss of $60 million and a gain of $39 million for the nine months ended September 30, 2021 and 2020, respectively.  The cumulative change was a gain of $133 million as of September 30, 2021.