Energy Transfer 2015 Annual Report Download - page 120

Table of Contents
may be less in a given period due to interest rate floors included in our variable rate debt instruments. We manage a portion of our interest rate exposure by
utilizing interest rate swaps, including forward-starting interest rate swaps to lock-in the rate on a portion of anticipated debt issuances.
The following table summarizes our interest rate swaps outstanding (dollars in millions), none of which are designated as hedges for accounting purposes:
Term
Type(1)
Notional Amount Outstanding
December 31, 2015
December 31, 2014
July 2015(2)
Forward-starting to pay a fixed rate of 3.38% and receive a floating rate
$ —
$ 200
July 2016(3)
Forward-starting to pay a fixed rate of 3.80% and receive a floating rate
200
200
July 2017(4)
Forward-starting to pay a fixed rate of 3.84% and receive a floating rate
300
300
July 2018(4)
Forward-starting to pay a fixed rate of 4.00% and receive a floating rate
200
200
July 2019(4)
Forward-starting to pay a fixed rate of 3.25% and receive a floating rate
200
300
December 2018
Pay a floating rate based on a 3-month LIBOR and receive a fixed rate of 1.53%
1,200
—
March 2019
Pay a floating rate based on a 3-month LIBOR and receive a fixed rate of 1.42%
300
—
February 2023
Pay a floating rate plus a spread of 1.73% and receive a fixed rate of 3.60%
—
200
(1) Floating rates are based on 3-month LIBOR.
(2) Represents the effective date. These forward-starting swaps have terms of 10 years with a mandatory termination date the same as the effective date.
(3) Represents the effective date. These forward-starting swaps have terms of 10 and 30 years with a mandatory termination date the same as the effective
date.
(4) Represents the effective date. These forward-starting swaps have terms of 30 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 interest rate derivatives) of $167 million as of December 31, 2015. For the $1.50 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 $53 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.
Credit Risk
Credit risk refers to the risk that a counterparty may default on its contractual obligations resulting in a loss. Credit policies have been approved and
implemented to govern the 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 use industry standard commercial
agreements which allow for the netting of exposures associated with transactions executed under a single commercial agreement. Additionally, we utilize
master netting agreements to offset credit exposure across multiple commercial agreements with a single counterparty or affiliated group of counterparties.
The Partnership’s counterparties consist of a diverse portfolio of customers across the energy industry, including petrochemical companies, commercial and
industrials, oil and gas producers, municipalities, gas and electric utilities, midstream companies and independent power generators. Our overall exposure
may be affected positively or negatively by macroeconomic or regulatory
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