Ingevity Corp

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Note 5: Fair Value Measurements

Recurring Fair Value Measurements

The following information is presented for assets and liabilities that are recorded on the consolidated balance sheets at fair value measured on a recurring basis. There were no transfers of assets and liabilities that are recorded at fair value between the three-level fair value hierarchy during the periods reported.

(1) Quoted prices in active markets for identical assets.

(2) Quoted prices for similar assets and liabilities in active markets.

(3) Significant unobservable inputs.

(4) Consists of a deferred compensation arrangement through which we hold various investment securities recognized on our consolidated balance sheets. Both the asset and liability related to investment securities are recorded at fair value and are included within "Other assets" and "Other liabilities" on the consolidated balance sheets, respectively. In addition to the investment securities, we also had company-owned life insurance related to the deferred compensation arrangement recorded at cash surrender value in "Other assets" of $14.9 million and $13.3 million at December 31, 2023 and 2022, respectively.

Nonrecurring Fair Value Measurements

There wereno nonrecurring fair value measurements on the consolidated balance sheet during the years ended December 31, 2023 and 2022.

Strategic Investments

Equity Method Investments

The aggregate carrying value of all strategic equity method investments was $16.0 million and $28.2 million at December 31, 2023 and 2022, respectively. During the first quarter of 2023, we sold a strategic equity method investment for $31.5 million, resulting in a $19.3 million gain, recorded within "Other (income) expense, net" on the consolidated statement of operations. There wereno adjustments to the carrying value of equity method investments for impairment for the periods ended, December 31, 2023 and 2022.

During 2022, we entered into an investment with a venture capital fund for $0.8 million, which is accounted for under the equity method of accounting. As of December 31, 2023 and 2022, respectively, we had approximately $5.6 million and $6.7 million of unfunded commitments, which we anticipate will be paid over a period of 10 years. The carrying value of our strategic equity investment was $1.7 million and $0.7 million at December 31, 2023 and 2022, respectively.

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Measurement Alternative Investments

The aggregate carrying value of all measurement alternative investments where fair value is not readily determinable totaled $83.2 million and $80.8 million at December 31, 2023 and 2022, respectively. There wereno adjustments to the carrying value of the measurement alternative method investments for impairment or observable price changes for the periods ended December 31, 2023 or 2022.

Restricted Investment

Our restricted investment is a trust managed in order to secure repayment of the finance lease obligation associated with Performance Materials' Wickliffe, Kentucky, manufacturing site at maturity. The trust, presented as Restricted investment on our consolidated balance sheets, originally purchased long-term bonds that mature through 2026. The principal received at maturity of the bonds, along with interest income that is reinvested in the trust, are expected to be equal to or more than the $80.0 million finance lease obligation that is due in 2027. Because the provisions of the trust provide us the ability, and it is our intent, to hold the investments to maturity, the investments held by the trust are accounted for as held to maturity ("HTM"); therefore, they are held at their amortized cost. The investments held by the trust earn interest at the stated coupon rate of the invested bonds. Interest earned on the investments held by the trust is recognized and presented as interest income on our consolidated statement of operations. As interest from the bonds is received and as bonds mature, any proceeds not reinvested are held in highly liquid securities and treated as restricted cash.

At December 31, 2023 and 2022, the carrying value of our restricted investment, which is accounted for as HTM and therefore held at amortized costs, was $79.1 million and $78.0 million, net of an allowance for credit losses of $0.2 million and $0.6 million and included restricted cash of $15.4 million and $7.0 million, respectively. The fair value at December 31, 2023 and 2022 was $76.7 million and $74.7 million, respectively, based on Level 1 inputs.

The following table shows the total amortized cost of our HTM debt securities by credit rating, excluding the allowance for credit losses and cash. The primary factor in our expected credit loss calculation is the composite bond rating. As the rating decreases, the risk present in holding the bond is inherently increased, leading to an increase in expected credit losses.

Debt and Finance Lease Obligations

At December 31, 2023 and 2022, the carrying value of finance lease obligations was $101.1 million and $101.9 million, respectively, and the fair value was $105.7 million and $106.2 million, respectively. The fair value of our finance lease obligations is based on the period-end quoted market prices for the obligations, using Level 2 inputs. The fair value of all other finance lease obligations approximates their carrying values.

The carrying value, excluding debt issuance fees, of our variable rate debt was $821.4 million and $828.0 million as of December 31, 2023 and 2022, respectively. The carrying value of our variable rate debt is a reasonable estimate of the fair value.

At December 31, 2023 and 2022, the carrying value of our fixed rate debt was $550.0 million and $550.0 million, respectively, and the fair value was $494.6 million and $471.8 million, respectively, based on Level 2 inputs.