Energy Transfer 2012 Annual Report Download - page 115

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contractual price of the instruments and the underlying commodity price. Results are presented in absolute terms and represent a
potential gain or loss in net income or in other comprehensive income. In the event of an actual 10% change in prompt month
natural gas prices, the fair value of our total derivative portfolio may not change by 10% due to factors such as when the financial
instrument settles and the location to which the financial instrument is tied (i.e., basis swaps) and the relationship between prompt
month and forward months.
Interest Rate Risk
As of December 31, 2012, we had $2.21 billion of floating rate debt outstanding. A hypothetical change of 100 basis points would
result in a change to interest expense of $22 million annually. We manage a portion of our interest rate exposure by utilizing interest
rate swaps. To the extent that we have debt with floating interest rates that are not hedged, our results of operations, cash flows
and financial condition could be adversely affected by increases in interest rates.
We had the following interest rate swaps outstanding as of December 31, 2012 (dollars in millions), none of which are designated
as hedges for accounting purposes:
Term Type (1)
Notional Amount Outstanding
Entity December 31, 2012 December 31, 2011
ETP May 2012(2) Forward starting to pay a fixed rate of 2.59% and receive a floating rate $ — $ 350
ETP August 2012(2) Forward starting to pay a fixed rate of 3.51% and receive a floating rate — 500
ETP July 2013(2) Forward starting to pay a fixed rate of 4.02% and receive a floating rate 400 300
ETP July 2014(2) Forward starting to pay a fixed rate of 4.25% and receive a floating rate 400 —
ETP July 2018 Pay a floating rate plus a spread of 4.17% and receive a fixed rate of 6.70% 600 500
Southern Union November 2016 Pay a fixed rate of 2.91% and receive a floating rate 75 —
Southern Union November 2021 Pay a fixed rate of 3.75% and receive a floating rate 450 —
(1) As of December 31, 2011, floating rates are based on 3-month LIBOR.
(2) Represents the effective date. These forward starting swaps have a term of 10 years with a mandatory termination date
the same as the effective date.
A hypothetical change of 100 basis points in interest rates for these interest rate swaps would result in a net change in the fair
value of interest rate derivatives and earnings (recognized in gains and losses on non-hedged interest rate derivatives) of
approximately $52 million as of December 31, 2012. For the $600 million of interest rate swaps whereby we pay a floating rate
and receive a fixed rate, a hypothetical change of 100 basis points in interest rates would result in a net change in annual cash
flows (swap settlements) of $6 million. For the forward-starting interest rate swaps, a hypothetical change of 100 basis points in
interest rates would not affect cash flows until the swaps are settled. For Southern Union's fixed to floating interest rate swaps, a
hypothetical change of 100 basis points in interest rates would result in a net change in annual cash flows (swap settlements) of
$7 million.
Credit Risk
We maintain credit policies with regard to our counterparties that we believe minimize our overall credit risk. These policies
include an evaluation of potential counterparties’ financial condition (including credit ratings), collateral requirements under certain
circumstances and the use of standardized agreements, which allow for netting of positive and negative exposure associated with
a single or multiple counterparties.
Our counterparties consist primarily of petrochemical companies and other industrials, small to major oil and gas producers,
midstream and power generation companies. This concentration of counterparties may impact our overall exposure to credit risk,
either positively or negatively in that the counterparties may be similarly affected by changes in economic, regulatory or other
conditions. Currently, management does not anticipate a material adverse effect on our financial position or results of operations
as a result of counterparty nonperformance.
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