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Derivative Instruments | 12 Months Ended
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Dec. 31, 2012
Derivative Instruments |
13. |  | Derivative Instruments
The Partnership uses derivative instruments in accordance with its overall risk management policy. The Partnership has not designated these derivative instruments as hedges for accounting purposes. Foreign Exchange Risk In May 2012, concurrent with the issuance of NOK 700 million of senior unsecured bonds (see Note 10), the Partnership entered into a cross currency swap and pursuant to this swap the Partnership receives the principal amount in NOK on the maturity date of the swap, in exchange for payment of a fixed U.S. Dollar amount. In addition, the cross currency swap exchanges a receipt of floating interest in NOK based on NIBOR plus a margin for a payment of U.S. Dollar fixed interest. The purpose of the cross currency swap is to economically hedge the foreign currency exposure on the payment of interest and principal of the Partnership’s NOK-denominated bonds due in 2017 and to economically hedge the interest rate exposure. As at December 31, 2012, the Partnership was committed to the following cross currency swap:
Principal |  |  | Principal |  |  | Floating Rate Receivable |  |  | Fixed |  |  | Fair Value / Carrying Amount of |  |  | Weighted- Average Remaining |
Amount NOK |  |  | Amount $ |  |  | Reference Rate |  |  | Margin |  |  | Rate Payable |  |  | Liability $ |  |  | Term (Years) |
| 700,000 |  |  |  | 125,000 |  |  |  | NIBOR |  |  |  | 5.25 | % |  |  | 6.88 | % |  |  | (2,623 | ) |  |  | 4.3 |
Interest Rate Risk The Partnership enters into interest rate swaps which either exchange a receipt of floating interest for a payment of fixed interest or a payment of floating interest for a receipt of fixed interest to reduce the Partnership’s exposure to interest rate variability on its outstanding floating-rate debt and floating-rate restricted cash deposits. As at December 31, 2012, the Partnership was committed to the following interest rate swap agreements:
|  | Interest Rate Index |  | Principal Amount $ |  |  | Fair Value / Carrying Amount of Assets (Liability) $ |  |  | Weighted- Average Remaining Term (years) |  |  | Fixed Interest Rate (%)(1) |
LIBOR-Based Debt: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Dollar-denominated interest rate swaps(2) |  | LIBOR |  |  | 412,880 |  |  |  | (110,590 | ) |  |  | 24.1 |  |  |  | 4.9 |
U.S. Dollar-denominated interest rate swaps(2) |  | LIBOR |  |  | 203,455 |  |  |  | (57,804 | ) |  |  | 6.2 |  |  |  | 6.2 |
U.S. Dollar-denominated interest rate swaps |  | LIBOR |  |  | 90,000 |  |  |  | (17,937 | ) |  |  | 5.7 |  |  |  | 4.9 |
U.S. Dollar-denominated interest rate swaps |  | LIBOR |  |  | 100,000 |  |  |  | (20,205 | ) |  |  | 4.0 |  |  |  | 5.3 |
U.S. Dollar-denominated interest rate swaps(3) |  | LIBOR |  |  | 206,250 |  |  |  | (56,355 | ) |  |  | 16.0 |  |  |  | 5.2 |
LIBOR-Based Restricted Cash Deposit: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Dollar-denominated interest rate swaps(2) |  | LIBOR |  |  | 469,260 |  |  |  | 165,687 |  |  |  | 24.1 |  |  |  | 4.8 |
EURIBOR-Based Debt: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Euro-denominated interest rate swaps(4) |  | EURIBOR |  |  | 341,382 |  |  |  | (41,329 | ) |  |  | 11.5 |  |  |  | 3.1 |
|  |  |  |  |  |  |  |  | (138,533 | ) |  |  |  |  |  |  |  |
(1) | Excludes the margins the Partnership pays on its floating-rate term loans, which, at December 31, 2012, ranged from 0.30% to 2.75%.
(2) | Principal amount reduces quarterly.
(3) | Principal amount reduces semi-annually.
(4) | Principal amount reduces monthly to 70.1 million Euros ($92.5 million) by the maturity dates of the swap agreements.
Credit Risk The Partnership is exposed to credit loss in the event of non-performance by the counterparties to the interest rate swap agreements. In order to minimize counterparty risk, the Partnership only enters into derivative transactions with counterparties that are rated A- or better by Standard & Poor’s or A3 or better by Moody’s at the time of the transactions. In addition, to the extent practical, interest rate swaps are entered into with different counterparties to reduce concentration risk. Other Derivatives In order to reduce the variability of its revenue, the Partnership has entered into an agreement with Teekay Corporation under which Teekay Corporation pays the Partnership any amounts payable to the charterer of the Toledo Spirit as a result of spot rates being below the fixed rate, and the Partnership pays Teekay Corporation any amounts payable to the Partnership by the charterer of the Toledo Spirit as a result of spot rates being in excess of the fixed rate. The fair value of the derivative asset at December 31, 2012 was $1.1 million (December 31, 2011 – a liability of $0.6 million). The following table presents the location and fair value amounts of derivative instruments, segregated by type of contract, on the Partnership’s consolidated balance sheets.
|  | Accounts receivable |  |  | Current portion of derivative assets |  |  | Derivative assets |  |  | Accrued liabilities |  |  | Current portion of derivative liabilities |  |  | Derivative liabilities |
As at December 31, 2012 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap agreements |  |  | 4,513 |  |  |  | 16,927 |  |  |  | 144,247 |  |  |  | (10,887 | ) |  |  | (48,046 | ) |  |  | (245,287 | )
Cross currency swap agreement |  |  | 54 |  |  |  | 285 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (2,962 | )
Toledo Spirit time-charter derivative |  |  | — |  |  |  | — |  |  |  | 1,100 |  |  |  | — |  |  |  | — |  |  |  | — |
|  |  | 4,567 |  |  |  | 17,212 |  |  |  | 145,347 |  |  |  | (10,887 | ) |  |  | (48,046 | ) |  |  | (248,249 | )
As at December 31, 2011 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap agreements |  |  | 4,344 |  |  |  | 15,608 |  |  |  | 139,651 |  |  |  | (11,448 | ) |  |  | (43,973 | ) |  |  | (248,645 | )
Toledo Spirit time-charter derivative |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (600 | )
|  |  | 4,344 |  |  |  | 15,608 |  |  |  | 139,651 |  |  |  | (11,448 | ) |  |  | (43,973 | ) |  |  | (249,245 | )
Realized and unrealized (losses) gains relating to interest rate swap agreements and the Toledo Spirit time-charter derivative are recognized in earnings and reported in realized and unrealized loss on derivative instruments in the Partnership’s consolidated statements of income. The effect of the (loss) gain on these derivatives on the Partnership’s consolidated statements of income is as follows:
|  | Year Ended December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
|  | Realized gains (losses) |  |  | Unrealized gains (losses) |  |  | Total |  |  | Realized gains (losses) |  |  | Unrealized gains (losses) |  |  | Total |  |  | Realized gains (losses) |  |  | Unrealized gains (losses) |  |  | Total |
Interest rate swap agreements |  |  | (37,427 | ) |  |  | 5,200 |  |  |  | (32,227 | ) |  |  | (62,660 | ) |  |  | (9,677 | ) |  |  | (72,337 | ) |  |  | (42,495 | ) |  |  | (34,906 | ) |  |  | (77,401 | )
Toledo Spirit time-charter derivative |  |  | 907 |  |  |  | 1,700 |  |  |  | 2,607 |  |  |  | (93 | ) |  |  | 9,400 |  |  |  | 9,307 |  |  |  | (1,919 | ) |  |  | 600 |  |  |  | (1,319 | )
|  |  | (36,520 | ) |  |  | 6,900 |  |  |  | (29,620 | ) |  |  | (62,753 | ) |  |  | (277 | ) |  |  | (63,030 | ) |  |  | (44,414 | ) |  |  | (34,306 | ) |  |  | (78,720 | )
Unrealized and realized gains (losses) of the cross currency swap are recognized in earnings and reported in foreign currency exchange (loss) gain in the Partnership’s consolidated statements of income. For the year ended December 31, 2012, unrealized losses of ($2.7) million and realized gains of $0.3 million were recognized in earnings.

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- Definition The entire disclosure for the entity's entire derivative instruments and hedging activities. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising therefrom, and the amounts of and methodologies and assumptions used in determining the amounts of such items. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80784-113994 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624171-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624181-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708775-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579245-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41641-113959 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579240-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41638-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41635-113959 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. 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