Energy Transfer 2012 Annual Report Download - page 196

F - 51
Interest Rate Risk
We are exposed to market risk for changes in interest rates. In order to maintain a cost effective capital structure, we borrow
funds using a mix of fixed rate debt and variable rate debt. We manage our current interest rate exposures by utilizing interest
rate swaps to achieve a desired mix of fixed and variable rate debt. We also utilize forward starting interest rate swaps to lock
in the rate on a portion of our anticipated debt issuances.
We had the following interest rate swaps outstanding as of December 31, 2012 and 2011, 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, 2012, 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.
As of December 31, 2012, Southern Union had no outstanding treasury rate locks; however, certain of its treasury rate locks
that settled in prior periods are associated with interest payments on outstanding long-term debt. These treasury rate locks
are accounted for as cash flow hedges, with the effective portion of their settled value recorded in AOCI and reclassified into
interest expense in the same periods during which the related interest payments on long-term debt impact earnings.
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.
We utilize master-netting agreements and have maintenance margin deposits with certain counterparties in the OTC market
and with clearing brokers. Payments on margin deposits are required when the value of a derivative exceeds our pre-established
credit limit with the counterparty. Margin deposits are returned to us on the settlement date for non-exchange traded derivatives,
and we exchange margin calls on a daily basis for exchange traded transactions. Since the margin calls are made daily with
the exchange brokers, the fair value of the financial derivative instruments are deemed current and netted in deposits paid to
vendors within other current assets in the consolidated balance sheets. The Partnership had net deposits with counterparties
of $41 million and $66 million as of December 31, 2012 and 2011, respectively.
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