Energy Transfer 2013 Annual Report Download - page 114

Table of Contents
assuming a theoretical 10% change (increase or decrease) in price regardless of term or historical relationships between the 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, 2013, we had $907 million of floating rate debt outstanding. A hypothetical change of 100 basis points would result in a change to interest
expense of $9 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.
The following table summarizes our interest rate swaps outstanding (dollars in millions), none of which are designated as hedges for accounting purposes:
Notional Amount Outstanding
Entity
Term
Type(1)
December 31, 2013
December 31, 2012
ETP
July 2013(2)
Forward-starting to pay a fixed rate of 4.03% and receive a
floating rate
$ —
$400
ETP
July 2014(2)
Forward-starting to pay a fixed rate of 4.25% and receive a
floating rate
400
400
ETP
July 2018
Pay a floating rate plus a spread of 4.17% and receive a
fixed rate of 6.70%
600
600
ETP
June 2021
Pay a floating rate plus a spread of 2.17% and receive a
fixed rate of 4.65%
400
—
ETP
February 2023
Pay a floating rate plus a spread of 1.32% and receive a
fixed rate of 3.60%
400
—
Southern Union(3)
November 2016
Pay a fixed rate of 2.97% and receive a floating rate
—
75
Southern Union(3)
November 2021
Pay a fixed rate of 3.801% and receive a floating rate
275
450
(1) 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.
During the year ended December 31, 2013, we settled $400 million of ETP’s forward-starting interest rate swaps that had an effective date of July 2013.
(3) In connection with the Panhandle Merger, Southern Union’s interest rate swaps outstanding were assumed by Panhandle.
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 interest rate derivatives) of $29 million as of December 31, 2013. For the $1.4 billion 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 of $14 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 of $3 million.
Credit Risk
Credit risk refers to the risk that a counterparty may default on its contractual obligations resulting in a loss to the Partnership. Credit policies have been
approved and implemented to govern the Partnership’s portfolio of counterparties with the objective of mitigating credit losses. These policies establish
guidelines, controls and limits to manage credit risk within approved tolerances by mandating an appropriate evaluation of the financial condition of existing
and potential counterparties, monitoring agency credit ratings, and by implementing credit practices that limit exposure according to the risk profiles of the
counterparties. Furthermore, the Partnership may at times require collateral under certain circumstances to mitigate credit risk as necessary. We also implement
the use of industry standard commercial agreements which allow for the netting of positive and negative exposures
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