Quarterly report pursuant to Section 13 or 15(d)

Assets and Liabilities Measured at Fair Value

v3.23.3
Assets and Liabilities Measured at Fair Value
9 Months Ended
Sep. 30, 2023
Assets and Liabilities Measured at Fair Value  
Assets and Liabilities Measured at Fair Value

(3) 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 does not have any recurring assets or liabilities measured at fair value that would be considered Level 3.

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

September 30, 2023

December 31, 2022

 

Quoted prices

Significant

Quoted prices

Significant

 

in active

other

in active

other

 

markets for

observable

markets for

observable

 

identical assets

inputs

identical assets

inputs

 

Description

Total

(Level 1)

(Level 2)

Total

(Level 1)

(Level 2)

 

amounts in millions

 

Cash equivalents

$

49

49

288

288

Indemnification obligation

$

21

21

50

50

Exchangeable senior debentures

$

1,318

1,318

1,373

1,373

Pursuant to an indemnification agreement initially entered into by GCI Liberty and assumed by Liberty Broadband in connection with the Combination, Liberty Broadband has agreed to indemnify Liberty Interactive LLC (“LI LLC”), a subsidiary of Qurate Retail, for certain payments made to holders of LI LLC’s 1.75% exchangeable debentures due 2046 (the "LI LLC 1.75% Exchangeable Debentures"). The indemnification liability due to LI LLC pertains to the holders’ ability to exercise their exchange right according to the terms of the LI LLC 1.75% Exchangeable Debentures on or before October 5, 2023. Such amount will equal the difference between the exchange value and par value of the LI LLC 1.75% Exchangeable Debentures at the time the exchange occurs. The indemnification obligation recorded in the condensed consolidated balance sheets as of September 30, 2023 represents the fair value of the estimated exchange feature included in the LI LLC 1.75% Exchangeable Debentures primarily based on observable market data as significant inputs (Level 2). As of September 30, 2023, a holder of the LI LLC 1.75% Exchangeable Debentures had the ability to exchange their debentures and, accordingly, such indemnification obligation is included as a current liability in the Company’s condensed consolidated balance sheets. During the nine months ended September 30, 2023, indemnification payments of $26 million were made by Liberty Broadband to Qurate Retail in connection with exchanges of $253 million of the LI LLC 1.75% Exchangeable Debentures that settled in the period. Subsequent to September 30, 2023, all remaining LI LLC 1.75% Exchangeable Debentures were either retired or exchanged.

The Company’s exchangeable senior debentures are debt instruments with quoted market value prices that are not considered to be traded on “active markets”, as defined in GAAP, and are reported in the foregoing table as Level 2 fair value.

Other Financial Instruments

Other financial instruments not measured at fair value on a recurring basis include trade receivables, trade payables, accrued and other current liabilities, equity securities, current portion of debt (with the exception of the 1.25% Debentures, and the 2.75% Debentures and 1.75% Debentures prior to their redemption in the first quarter of 2023 (defined in note 6)) and long-term debt (with the exception of the 3.125% Debentures (as defined in note 6)). With the exception of long-term debt and preferred stock, the carrying amount approximates fair value due to the short maturity of these instruments as reported on our condensed consolidated balance sheets. The carrying value of the Margin Loan Facility, the Senior Credit Facility and the Wells Fargo Note Payable (each as defined in note 6) all bear interest at a variable rate and therefore are also considered to approximate fair value.

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,

 

2023

2022

2023

2022

 

amounts in millions

 

Indemnification obligation

$

(12)

138

3

287

Exchangeable senior debentures (1)

(69)

10

(158)

75

$

(81)

148

(155)

 

362

(1) The Company has elected to account for its exchangeable senior debentures using the fair value option. Changes in the fair value of the exchangeable senior debentures recognized in the condensed consolidated statements of operations are primarily due to market factors 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 income. The change in the fair value of the exchangeable senior debentures attributable to changes in the instrument specific credit risk before tax was a loss of $14 million and $15 million for the three months ended September 30, 2023 and 2022, respectively, and a gain of $47 million and $5 million for the nine months ended September 30, 2023 and 2022, respectively. The cumulative change was a gain of $47 million as of September 30, 2023.