Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2022

Note 9—Fair Value of Financial Instruments

The Company’s warrant liabilities were initially valued as of April 12, 2021, the date of the Initial Public Offering. As of that date, the over-allotment option had not yet been exercised and the funds in the Trust Account were all in cash and not yet invested. On April 15, 2021, the underwriters exercised their over-allotment option in full which contributed an additional 1,500,000 Public warrants.

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at June 30, 2022 and December 31, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:


	June 30, 2022		Quoted Priced in Active Markets (Level 1)		Significant Other Observable Inputs Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Assets:
U.S. Treasury Securities held in Trust Account	$	345,279,811	$	345,279,811	$	—	$	—
Liabilities:
Public warrant liabilities, including over-allotment		1,150,000		1,150,000		—		—
Private warrant liabilities		514,514		—		—		514,514


Warrant liabilities	$	1,664,514	$	1,150,000	$	—	$	514,514


	December 31, 2021		Quoted Priced in Active Markets (Level 1)		Significant Other Observable Inputs Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
Assets:
U.S. Treasury Securities held in Trust Account	$	345,017,891	$	345,017,891	$	—	$	—
Liabilities:
Public warrant liabilities, including over-allotment		10,453,500		10,453,500		—		—
Private warrant liabilities		4,627,309		—		—		4,627,309


Warrant liabilities	$	15,080,809	$	10,453,500	$	—	$	4,627,309

The Company initially utilized the trading value of the public warrants and a Monte Carlo simulation model to value the private placement warrants at each reporting period, with changes in fair value recognized in the unaudited condensed statements of operations. The estimated fair value of the warrant liabilities was initially determined using Level 3 inputs. Inherent in a binomial options pricing model are assumptions related to expected share-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its ordinary shares based on historical volatility that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S.

Treasury zero-coupon yield curve

on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero.

The following table provides quantitative information regarding Level 3 fair value measurements:


	June 30, 2022			December 31, 2021
Share price	$	9.77		$	9.74
Strike price	$	11.50		$	11.50
Term (in years)		5.63			5.85
Volatility		8.8	%		14.4	%
Risk-free rate		3.02	%		1.34	%

The following table provides a reconciliation of changes in fair value of the beginning and ending balances for the liabilities classified as Level 3:


	Warrant Liability
Fair Value at December 31, 2021		4,627,309
Change in fair value		(2,997,994	)

Fair Value at March 31, 2022		1,629,315
Change in fair value		(1,114,801	)


Fair Value at June 30, 2022	$	514,514


	Warrant Liability
Fair value as of February 8, 2021 (inception)	$	—
Initial value of public and private warrant liabilities at April 12, 2021		24,147,086
Public warrants reclassified to Level 1 at June 3, 2021		(16,563,688	)
Change in fair value		(2,290,472	)

Fair Value at June 30, 2021		5,292,926

For the three and six months ended June 30, 2022, there were no transfers between level 1, 2 and 3.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Tio Tech A 10-Q