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Financial Instruments

6 Months Ended

Jun. 30, 2012

3.	Financial Instruments

Fair Value Measurements

For a description of how the Partnership estimates fair value and for a description of the fair value hierarchy levels, see Note 4 in the Partnership’s audited consolidated financial statements filed with its Annual Report on Form 20-F for the year ended December 31, 2011. The following table includes the estimated fair value and carrying value of those assets and liabilities that are measured at fair value on a recurring and non-recurring basis as well as the estimated fair value of the Partnership’s financial instruments that are not accounted for at a fair value on a recurring basis.


				June 30, 2012						December 31, 2011
	Fair Value Hierarchy Level			Carrying Amount Asset (Liability) $			Fair Value Asset (Liability) $			Carrying Amount Asset (Liability) $			Fair Value Asset (Liability) $

Recurring:
Cash and cash equivalents and restricted cash		Level 1			641,621			641,621			589,261			589,261
Derivative instruments (note 10)
Interest rate swap agreements – assets		Level 2			166,527			166,527			159,603			159,603
Interest rate swap agreements – liabilities		Level 2			(326,229	)		(326,229	)		(304,066	)		(304,066	)
Cross currency swap agreement		Level 2			(10,220	)		(10,220	)		—			—
Other derivative		Level 3			(300	)		(300	)		(600	)		(600	)
Other:
Advances to joint venture partner (note 6)		⁽¹	⁾		13,931			⁽¹	⁾		10,200			⁽¹	⁾
Long-term debt (note 7)		Level 2			(1,533,652	)		(1,397,849	)		(1,315,231	)		(1,191,117	)

(1)	The fair value of the Partnership’s advances to its joint venture partner as at June 30, 2012 and December 31, 2011 was not determinable given the repayment terms described in Note 6 – Advances to Joint Venture Partner.

Changes in fair value during the six months ended June 30, 2012 and 2011 for the Partnership’s other derivative liability, the Toledo Spirit time-charter derivative, that is measured at fair value on a recurring basis using significant unobservable inputs (Level 3), are as follows:


	Six Months Ended June 30,
	2012			2011
	$			$
Fair value at beginning of period		(600	)		(10,000	)
Realized and unrealized gains included in earnings		262			347
Settlements		38			53

Fair value at end of period		(300	)		(9,600	)

The estimated fair value of the Partnership’s other derivative is based in part upon the Partnership’s projection of future spot market tanker rates, which has been derived from current spot market tanker rates and long-term historical average rates as well as an estimated discount rate. The estimated fair value of the Partnership’s other derivative as of June 30, 2012 is based upon an average daily tanker rate of $29,564 (December 31, 2011 – $29,498) over the remaining duration of the contract and a discount rate of 8.91% (December 31, 2011 – 8.68%). In developing and evaluating this estimate, the Partnership considers the current tanker market fundamentals as well as the short and long-term outlook. A higher or lower average daily tanker rate would result in a higher or lower fair value liability or a lower or higher fair value asset. A higher or lower discount rate would result in a lower or higher fair value asset or liability.

Financing Receivables

The following table contains a summary of the Partnership’s loan receivables and other financing receivables by type of borrower and the method by which the Partnership monitors the credit quality of its financing receivables on a quarterly basis.

Credit Quality

June 30,
2012

December 31,
2011

Class of Financing Receivable

Indicator

Grade

Direct financing leases

Payment activity

Performing

406,549

409,541

Other receivables

Long-term receivable included in other assets

Payment activity

Performing

973

786

Advances to joint venture included in investment in and advances to joint ventures

Payment activity

Performing

—

830

Advances to joint venture partner (note 6)

Other internal metrics

Performing

13,931

10,200

421,453

421,357