Triton International LtdTRTN-PA
Triton International Ltd Fair Value Disclosure
Note 3—Fair Value of Financial Instruments
Fair value represents the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses the following fair value hierarchy when selecting inputs for its valuation techniques, with the highest priority given to Level 1:
• | Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities; |
• | Level 2 - inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and |
• | Level 3 - unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing. |
Fair Value of Debt
The Company does not measure debt, net of unamortized debt costs, at fair value in its consolidated balance sheets. The fair value was measured using Level 2 inputs and the carrying value and fair value are summarized in the following table (in thousands):
December 31, 2018 | December 31, 2017 | ||||||
Liabilities | |||||||
Total Debt - carrying value(1) | $ | 7,595,922 | $ | 6,986,333 | |||
Total Debt - fair value | $ | 7,559,063 | $ | 6,991,537 | |||
(1) | Excludes unamortized debt costs of $44.9 million and $40.6 million, purchase price debt adjustments of $16.3 million and $27.5 million, and unamortized debt discounts of $5.3 million and $6.5 million as of December 31, 2018 and 2017, respectively. |
Fair Value of Equipment Held for Sale
The Company’s equipment held for sale fair value is measured using Level 2 inputs and is based on recent sales prices and other factors. Equipment held for sale is recorded at the lower of fair value, less costs to sell, or carrying value and an impairment charge is recorded when the carrying value of the asset exceeds its fair value. The following table summarizes the portion of the Company’s equipment held for sale measured at fair value and the cumulative impairment charges recorded to net gain (loss) on sale of leasing equipment through the periods summarized below (in thousands):
December 31, 2018 | December 31, 2017 | ||||||
Assets | |||||||
Equipment held for sale - assets at fair value(1) | $ | 5,750 | $ | 6,104 | |||
Cumulative impairment charges(2) | $ | (1,846 | ) | $ | (2,242 | ) | |
(1) | Represents the fair value of containers included in equipment held for sale in the consolidated balance sheets that have been impaired to write down the carrying value of the containers to their estimated fair value less cost to sell. |
(2) | Represents the cumulative impairment charges recognized on equipment held for sale from the date of designated held for sale status to the indicated period end date. |
The Company recognized net impairment charges of $3.9 million for the year ended December 31, 2018, an immaterial net impairment reversal for the year ended December 31, 2017, and net impairment charges of $19.4 million for the year ended December 31, 2016.
Fair Value of Derivative Instruments
The Company has elected to use the income approach to value its interest rate swap and cap agreements, using Level 2 market expectations at the measurement date and standard valuation techniques to convert future amounts to a single present amount (discounted). The Level 2 inputs for the interest rate swap and cap valuations are inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR and swap rates, basis swap adjustments and credit risk at commonly quoted intervals).
The fair value of derivative instruments on its consolidated balance sheets as of December 31, 2018 and December 31, 2017
were as follows (in thousands):
Asset Derivatives | Liability Derivatives | ||||||||||||||
Derivative Instrument | December 31, 2018 | December 31, 2017 | December 31, 2018 | December 31, 2017 | |||||||||||
Interest rate cap and swap contracts, designated | $ | 10,531 | $ | 3,554 | $ | 10,966 | $ | 2,503 | |||||||
Interest rate swap contracts, not designated | 3,392 | 3,822 | — | — | |||||||||||
Total derivatives | $ | 13,923 | $ | 7,376 | $ | 10,966 | $ | 2,503 | |||||||
Fair Value of Other Assets and Liabilities
Cash and cash equivalents, restricted cash, accounts receivable, equipment purchases payable, and accounts payable carrying value amounts approximate fair values because of the short-term nature of these instruments. The Company’s other financial and non-financial assets, which include leasing equipment, net investment in finance leases, intangible assets and goodwill, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required and the Company determines that these other financial and non-financial assets are impaired after completing an evaluation, these assets would be written down to their fair value.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2018 | Feb 19, 2019 | Showing above |
| 2017 | Feb 27, 2018 | |
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.