Target Hospitality Corp. Fair Value Disclosure
11. Fair Value of Financial Instruments
The fair value of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
The Company has assessed that the fair value of cash and cash equivalents, trade receivables, trade payables, other current liabilities, and other debt approximates their carrying amounts largely due to the short-term maturities or recent commencement of these instruments. The fair value of the ABL Facility is primarily based upon observable market data, such as market interest rates, for similar debt. The fair value of the Notes is based upon observable market data.
Level 1 & 2 Disclosures:
The carrying amounts and fair values of financial assets and liabilities, which are either Level 1 or Level 2, are as follows:
| December 31, 2024 |
| December 31, 2023 | |||||||||
Financial Assets (Liabilities) Not Measured at Fair Value |
| Carrying |
| Fair Value |
| Carrying |
| Fair Value | ||||
ABL Facility (See Note 8) - Level 2 | $ | — | $ | — | $ | — |
| $ | — | |||
Senior Secured Notes (See Note 8) - Level 1 | $ | (180,328) | $ | (185,075) | $ | (178,093) | $ | (187,797) | ||||
Recurring fair value measurements
Level 3 Disclosures:
There were 1,533,334 Private Warrants outstanding as of December 31, 2023. As there were no Private Warrants outstanding as of December 31, 2024 due to the expiration of the Private Warrants as noted below, a fair value assessment was not performed as it was not needed as of December 31, 2024. Based on the fair value assessment that was performed, the Company determined a fair value price per Private Warrant $0.44 as of December 31, 2023. The fair value is classified
as Level 3 in the fair value hierarchy due to the use of pricing inputs that are less observable in the marketplace combined with management judgment required for the assumptions underlying the calculation of value. The Company determined the estimated fair value of the Private Warrants using the Black-Scholes option-pricing model. The table below summarizes the inputs used to calculate the fair value of the warrant liabilities at each of the dates indicated below:
December 31, | |||
2023 | |||
Exercise Price | $ | 11.50 | |
Stock Price | $ | 9.73 | |
Dividend Yield | % | 0.00 | |
Expected Term (in Years) | 0.20 | ||
Risk-Free Interest Rate | % | 5.31 | |
Expected Volatility | % | 56.00 | |
Per Share Value of Warrants | $ | 0.44 |
The following table presents changes in Level 3 liabilities measured at fair value for the year ended December 31, 2023:
Private Placement Warrants | |||
Balance at December 31, 2022 | $ | 9,737 | |
Change in fair value of warrant liabilities | (9,062) | ||
Balance at December 31, 2023 | $ | 675 | |
The following table presents changes in Level 3 liabilities measured at fair value for the year ended December 31, 2024:
Private Placement Warrants | |||
Balance at December 31, 2023 | $ | 675 | |
Change in fair value of warrant liabilities | (675) | ||
Balance at December 31, 2024 | $ | 0 | |
There were no transfers of financial instruments between the three levels of the fair value hierarchy during the years ended December 31, 2024 and 2023, respectively. The Private Warrants expired unexercised on March 15, 2024 and are no longer outstanding.
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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.