Fair Value Measurements

3 Months Ended

Mar. 31, 2023

Note 10 - Fair Value Measurements

The following table presents information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis:

	Fair Value Measured as of March 31, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Investments held in Trust Account - cash	$	261,625,169	$	-	$	-	$	261,625,169
Liabilities:
Derivative liabilities:
Derivative liabilities - Public Warrants	$	3,910,000	$	-	$	-	$	3,910,000
Derivative liabilities - Private Placement Warrants	$	-	$	1,790,667	$	-	$	1,790,667
Derivative liabilities - Forward Purchase Agreement	$	-	$	-	$	907,778	$	907,778
Total derivative liabilities:	$	3,910,000	$	1,790,667	$	907,778	$	6,608,445
Extension loans – related party	$	-	$	-	$	590,088	$	590,088
Working capital loans - related party	$	-	$	-	$	790,720	$	790,720

	Fair Value Measured as of December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Investments held in Trust Account - money market funds	$	700,029,520	$	-	$	-	$	700,029,520
Liabilities:
Derivative liabilities:
Derivative liabilities - Public Warrants	$	1,840,000	$	-	$	-	$	1,840,000
Derivative liabilities - Private Placement Warrants	$	-	$	842,670	$	-	$	842,670
Derivative liabilities - Forward Purchase Agreement	$	-	$	-	$	708,080	$	708,080
Total derivative liabilities:	$	1,840,000	$	842,670	$	708,080	$	3,390,750
Working capital loans - related party	$	-	$	-	$	708,747	$	708,747

Transfers to/from Levels 1, 2, and 3 are recognized at the beginning of the reporting period. The estimated fair value of the Public Warrants transferred from an initial Level 3 measurement to a Level 1 fair value measurement as the Public Warrants were separately listed and traded in March 2021. The estimated fair value of the Private Placement Warrants was transferred from a Level 3 measurement to a Level 2 fair value measurement in July 2021, as the transfer of Private Placement Warrants to anyone who is not a permitted transferee would result in the Private Placement Warrants having substantially the same terms as the Public Warrants.

Level 1 assets include investments in cash and money market funds that invest solely in U.S. Treasury securities. The Company uses inputs such as actual trade data, benchmark yields, quoted market prices from dealers or brokers, and other similar sources to determine the fair value of its investments.

Level 3 Valuations

Forward Purchase Agreement

The fair value of the Units associated with the Forward Purchase Agreement have been estimated utilizing a forward pricing model with Level 3 inputs. The Company determined that the initial fair value of the Units (including shares and warrants) associated with the Forward Purchase Agreement as of January 15, 2021, was insignificant.

Inherent in a forward pricing model are assumptions related to expected life and risk-free interest rate. 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 Units associated with the Forward Purchase Agreement. The expected life of the Units associated with the Forward Purchase Agreement is assumed to be equivalent to their remaining contractual term.

The following table provides quantitative information regarding Level 3 fair value measurements inputs for Forward Purchase Agreement as their measurement dates:

	As of December 31, 2022			As of March 31, 2023
Forward Purchase Agreement:
Expected term		0.53			0.75
Risk-free interest rate		4.65	%		4.68	%
Probability of Business Combination		40.00	%		25.00	%

Warrants

The fair value of the Public Warrants issued in connection with the Public Offering and Private Placement Warrants were initially measured at fair value using a Monte Carlo simulation model and subsequently, the fair value of the Private Placement Warrants have been estimated using a Modified Black-Scholes model.

Inherent in a Monte Carlo simulation model, Modified Black-Scholes Model, and a forward pricing model are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock warrants based on implied volatility from the Company’s traded warrants and from historical volatility of select peer company’s common stock 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 remaining at zero.

Change in Fair Value of Derivative Liabilities – Level 3 inputs

The change in the fair value of the derivative liabilities, measured using Level 3 inputs, for the period ended March 31, 2023 and December 31, 2022, is summarized as follows:

Derivative liabilities at December 31, 2021 - Level 3 measurement	$	401,860
Change in fair value of forward purchase agreement - Level 3 measurement		(734,490	)
Derivative (asset) at March 31, 2022 - Level 3 measurement		(332,630	)
Change in fair value of forward purchase agreement - Level 3 measurement		1,040,710
Derivative liabilities at December 31, 2022 - Level 3 measurement		708,080
Change in fair value of forward purchase agreement - Level 3 measurement		199,698
Derivative liabilities at March 31, 2023 - Level 3 measurement	$	907,778

Working Capital Loan - Related Party

The estimated fair value of the Working Capital Loan - Related Party was estimated utilizing a Black-Scholes model with Level 3 inputs.

The following table provides quantitative information regarding the inputs for the fair value measurement of the Working Capital Loan - Related Party as of their measurement dates:

Working capital loans	As of December 31, 2022			As of March 31, 2023
Exercise price	$	1.50		$	1.50
Volatility		12.60	%		6.1	%
Expected term		0.53			0.75
Risk-free interest rate		4.65	%		4.68	%
Probability of Business Combination		40.00	%		25.00	%

The change in the fair value of the working capital loans - related party, measured utilizing Level 3 measurements for the period ended March 31, 2023 and December 31, 2022, is summarized as follows:

Working capital loans – related party at December 31, 2021 - Level 3 measurement	$	592,388
Change in fair value of working capital loans - Level 3 measurement		(15,168	)
Working capital loans – related party at March 31, 2022 - Level 3 measurement		577,220
Proceeds from working capital loan - related party		1,250,025
Change in fair value of working capital loans - Level 3 measurement		(1,118,498	)
Working capital loans – related party at December 31, 2022 - Level 3 measurement		708,747
Proceeds from working capital loan - related party		1,500,000
Change in fair value of working capital loans - Level 3 measurement		(1,418,027	)
Working capital loans – related party at March 31, 2023 - Level 3 measurement	$	790,720

Extension Loan - Related Party

The estimated fair value of the Extension Loan - Related Party was estimated utilizing a discounted cash flow model with Level 3 inputs.

The following table provides quantitative information regarding the inputs for the fair value measurement of the Extension Loan - Related Party as of their measurement dates:

Extension loans	As of March 31, 2023
Spread		3.25	%
Expected term		0.75
Risk-free interest rate		4.68	%
Probability of Business Combination		25.00	%

The change in the fair value of the Extension loans - related party, measured utilizing Level 3 measurements for the period ended March 31, 2023 and December 31, 2022, is summarized as follows:

Extension loans – related party at December 31, 2022 - Level 3 measurement	$	-
Proceeds from extension loan - related party		2,500,001
Change in fair value of extension loans - Level 3 measurement		(1,909,913	)
Extension loans – related party at March 31, 2023 - Level 3 measurement	$	590,088

- 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

Pontem Corp 10-Q