Blue Water Acquisition Corp. III Fair Value Disclosure
Note 9 – Fair Value Measurements
Recurring Fair Value Measurements
At December 31, 2025, the Company’s cash and marketable securities held in the Trust Account were valued at $258,796,563. The cash and marketable securities held in the Trust Account are recorded on the balance sheet at fair value and are subject to remeasurement at each balance sheet date. With each remeasurement, the valuations will be adjusted to fair value, with the change in fair value recognized in the Company’s statement of operations.
The following table presents the fair value information, as of December 31, 2025, of the Company’s financial assets that were accounted for at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. As of December 31, 2025, the Company’s cash and marketable securities held in the Trust Account are held in a demand deposit account carried at cost, and its carrying mount approximates its fair value as it is short-term in nature and payable on demand. Cash held in the Trust Account is classified within Level 1 of the fair value hierarchy.
The following table sets forth by level within the fair value hierarchy the Company’s assets and liabilities that were accounted for at fair value on a recurring basis:
| (Level 1) | | (Level 2) | | (Level 3) | ||||
As of December 31, 2025 |
| |
| |
| | |||
Assets: |
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Cash held in Trust Account | $ | 258,796,563 | $ | — | $ | — | |||
Non-recurring Fair Value Measurements
The Company performed a non-recurring fair value measurement on the Public Warrants on date of the consummation of the Initial Public Offering to determine the allocation of the proceeds from the Units issued in the Initial Public Offering between the Class A ordinary shares and the Public Warrants. The Company applied the residual allocation method, first by assigning the value of the Warrants and then deriving the value of the Class A ordinary shares from the $10.00 Unit price.
The fair value of the Public Warrants as of June 11, 2025, was $3,340,119, or $0.26 per Public Warrant. The fair value of Public Warrants was determined using a . The Public Warrants have been classified within shareholders’ deficit and will not require remeasurement after issuance. The Public Warrants are classified as Level 3 fair value measurements. The following table presents the quantitative information regarding market assumptions used in the valuation of the Public Warrants:
| June 11, 2025 |
| ||
Implied ordinary share price | $ | 9.87 | ||
Exercise price | $ | 11.50 | ||
Simulation term (years) |
| 6.50 | ||
Risk-free rate |
| 4.16 | % | |
Selected volatility |
| 2.70 | % | |
Calculated value per warrant | $ | 0.26 | ||
Market adjustment |
| 23.53 | % | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.