Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.21.2
Fair Value Measurements
6 Months Ended
Jul. 31, 2021
FAIR VALUE MEASUREMENTS  
Fair Value Measurements

(17) Fair Value Measurements

FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) establishes a fair value hierarchy that prioritizes the inputs used to measure fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

The three levels of the fair value hierarchy established by ASC 820 in order of priority are as follows:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs that reflect the Company’s assumptions about the assumptions that market participants would use in pricing the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available.

The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis as of July 31, 2021 and are categorized using the fair value hierarchy (in thousands):

    

Total

    

(Level 3)

Private Placement Warrants – Sponsor

$

28,525

 

28,525

Total assets recorded at fair value

$

28,525

 

28,525

The following table is a reconciliation of Level 3 instruments for which significant unobservable inputs were used to determine fair value:

Three months ended

    

April 30, 2021

Balance as of January 31, 2021 (Predecessor (SLH))

$

900

Impact of warrant modification, recorded in shareholders’ equity

Unrealized gains recognized as other income

 

(900)

Balance as of June 11, 2021 (Predecessor (SLH))

Balance as of June 12, 2021 (Successor)

 

45,640

Unrealized gains recognized as other income

 

(17,115)

Balance as of July 31, 2021 (Successor)

$

28,525

Predecessor Company (SLH) Warrants

At each relevant measurement date, the predecessor warrants were valued using a probability-based approach that considered management’s estimate of the probability of (i) a sale of the company that met certain conditions that caused the warrants to be cancelled for no consideration, (ii) a sale of the company that did not meet certain conditions that caused the warrants to be cancelled for no consideration and (iii) warrants being held to maturity, with the last two scenarios utilizing a Black-Scholes model to estimate fair value.  As a result of the Skillsoft Merger, the warrants were terminated for no consideration on June 11, 2021 and, as a result, the Company recorded a gain of $0.9 million for the period from February 1, 2021 to June 11, 2021.

Successor Company Warrants

The Company classifies certain Private Placement Warrants as liabilities in accordance with ASC Topic 815.  The Company estimates the fair value of the Private Placement Warrants using a Black-Scholes option pricing model.  The fair value of the Private Placement Warrants utilized Level 3 inputs as it is based on significant inputs not observable in the market.   The fair value of the Private Placement Warrants classified as liabilities was estimated at June 11, 2021 and July 31, 2021 using a Black-Scholes options pricing model and the following assumptions:

    

June 11, 2021

    

July 31, 2021

 

Risk-free interest rates

 

0.76

%

0.67

%

Expected dividend yield

 

 

Volatility factor

 

31

%

33

%

Expected lives (years)

 

5.0

 

4.9

Value per unit

 

2.80

$

1.75

The Company currently invests excess cash balances primarily in cash deposits held at major banks. The carrying amounts of cash deposits, trade receivables, trade payables and accrued liabilities, as reported on the consolidated balance sheet as of July 31, 2021, approximate their fair value because of the short maturity of those instruments.

The Company considered the fair value of its external borrowings and believes their carrying values approximate fair value at July 31, 2021 based on the timing of the July 2021 Term Loans.