Energy Transfer 2010 Annual Report Download - page 94

Interest Rate Risk
As of December 31, 2010, we had $402.3 million of variable rate debt outstanding under our revolving credit
facilities. A hypothetical change of 100 basis points would result in a change to interest expense of $4.0 million
annually. We manage a portion of our interest rate exposure by utilizing interest rate swaps and similar
arrangements. To the extent that we have debt with variable interest rates that is not hedged, our results of
operations, cash flows and financial condition could be materially adversely affected by significant increases in
interest rates. We had the following interest rate swaps outstanding as of December 31, 2010 (dollars in
thousands), none of which are designated as hedges for accounting purposes:
Term
Notional
Amount Type
August 2012 (1) $400,000 Forward starting to pay a fixed rate
of 3.64% and receive a floating rate
July 2018 500,000 Pay a floating rate and receive a
fixed rate of 6.70%
(1) These forward starting swaps have an effective date of August 2012 and a term of 10 years; however, the
swaps have a mandatory termination provision and will be settled in August 2012.
A hypothetical change of 100 basis in interest rates for these interest rate swaps would result in a net change in
the fair value of interest rate derivatives and earnings of approximately $0.3 million. For the $500.0 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 of $5.0 million. For the $400.0 million
of forward-starting interest rate swaps, a hypothetical change of 100 basis points in interest rates would not affect
cash flows until August 2012 when the swaps are settled.
During the year ended December 31, 2010, we began to periodically enter into interest rate swaptions when our
targeted benchmark interest rates for anticipated debt issuances are not attainable at the time in the interest rate
swap market. Swaptions enable counterparties to exercise options to enter into interest rate swaps with us in
exchange for premiums. As of December 31, 2010, we had no swaptions outstanding.
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 counterparty.
Our counterparties consist primarily of petrochemical companies and other industrials, mid-size to major oil and
gas companies and power 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 performance.
For financial instruments, failure of a counterparty to perform on a contract could result in our inability to realize
amounts that have been recorded on our consolidated balance sheet and recognized in net income or other
comprehensive income.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements starting on page F-1 of this report are incorporated by reference.
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