v3.5.0.2

Accounting for derivative instruments and hedging activities | 9 Months Ended
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Sep. 30, 2016
Accounting for derivative instruments and hedging activities |
Accounting for derivative instruments and hedging activities | 9. Accounting for derivative instruments and hedging activities We recognize all derivative instruments on the balance sheet as either assets or liabilities and measure them at fair value in each reporting period. We have one contract designated as a cash flow hedge, and we defer the effective portion of the change in fair value of the derivatives in accumulated other comprehensive income (loss), until the hedged transactions occur and are recognized in earnings (loss). The ineffective portion of a cash flow hedge is immediately recognized in earnings (loss). For our other derivatives that are not designated as cash flow hedges, the changes in the fair value are immediately recognized in earnings (loss). These guidelines apply to our natural gas swaps, interest rate swaps, and foreign exchange contracts. Gas purchase agreements Gas purchase agreements to purchase gas forward at our North Bay, Kapuskasing and Nipigon projects do not qualify for the normal purchase normal sales (“NPNS”) exemption and are accounted for as derivative financial instruments. The gas purchase agreements at North Bay and Kapuskasing satisfy all of the forecasted fuel requirements for these projects through their expiration on December 31, 2016. The gas purchase agreement for Nipigon satisfies the majority of forecasted fuel requirements through December 31, 2022. These derivative financial instruments are recorded in the consolidated balance sheets at fair value and the changes in their fair market value are recorded in the consolidated statements of operations. In June 2014, APLP entered into contracts for the purchase of 2.9 million Gigajoules (“Gj”) of future natural gas purchases beginning on November 1, 2014 and expiring on December 31, 2017 for our projects in Ontario. These contracts effectively fix the price of approximately 100% of our expected uncontracted gas requirements for 2015 and 35% and 30% of our expected uncontracted gas requirements for 2016 and 2017, respectively. These contracts are accounted for as derivative financial instruments and are recorded in the consolidated balance sheet at fair value. Changes in the fair market value of these contracts are recorded in the consolidated statement of operations. We have entered into various natural gas sales and purchase agreements for approximately 1.3 million Mmbtu to effectively mitigate seasonal fluctuation of future natural gas price at Morris through March 2017. These contracts are accounted for as derivative financial instruments and are recorded in the consolidated balance sheet at fair value at September 30, 2016. Changes in the fair market value of these contracts are recorded in the consolidated statement of operations. Natural gas swaps Our strategy to mitigate future exposure to changes in natural gas prices at our projects consists of periodically entering into financial swaps that effectively fix the price of natural gas expected to be purchased at these projects. These natural gas swaps are derivative financial instruments and are recorded in the consolidated balance sheets at fair value and the changes in their fair market value are recorded in the consolidated statements of operations. We have entered into various natural gas swaps to effectively fix the price of 5.7 million Mmbtu of future natural gas purchases at Orlando, which is approximately 95% of our share of the expected natural gas purchases at the project through December 2017. These contracts are accounted for as derivative financial instruments and are recorded in the consolidated balance sheet at fair value at September 30, 2016. Changes in the fair market value of these contracts are recorded in the consolidated statement of operations. Interest rate swaps On May 5, 2014, APLP entered into several interest rate swap agreements to mitigate exposure to changes in the Adjusted Eurodollar Rate for $199.0 million notional amount ($124.7 million at September 30, 2016) of the $600 million aggregate principal amount of borrowings under the Term Loan Facility, which had entered on February 24, 2014 and redeemed in whole on May 2016. The interest rate swap agreements were effective June 30, 2014 and terminate on December 29, 2017. The interest rate swap agreements are not designated as hedges and changes in their fair market value will be recorded in the consolidated statements of operations. These interest rate swap agreements were novated to APLP Holdings. APLP Holdings has entered into several interest rate swap agreements to mitigate its exposure to changes in interest at the Adjusted Eurodollar Rate for $310.0 million notional amount ($124.7 million at September 30, 2016) of the $700.0 million aggregate principal amount ($654.9 million at September 30, 2016) of borrowings under the New Term Loans. Interest rate swap agreements with $160.0 million remaining notional terminate on September 30, 2019 and interest swap agreements with $150.0 million remaining notional terminate on March 31, 2020. Borrowings under the $700.0 million New Term Loans bear interest at a rate equal to the Adjusted Eurodollar Rate plus an applicable margin of 5.00%. Based on the terms of the Credit Agreement, the Adjusted Eurodollar Rate cannot be less than 1.00% resulting in a minimum of a 6.00% all-in rate on the Term Loan Facility. As a result of entering into the swap agreements, the all-in rate for $509.0 million of the New Term Loans cannot be less than 6.00%, if the Adjusted Eurodollar Rate is equal to or greater than 1.00%. The Piedmont project has interest rate swap agreements to economically fix its exposure to changes in interest rates related to its variable‑rate debt. The interest rate swap agreement effectively converts the floating rate debt to a fixed interest rate of 1.7% plus an applicable margin ranging from 3.5% to 3.8% through February 29, 2016. From February 2016 until the maturity of the debt in August 2018, the fixed rate of the swap is 4.47% and the applicable margin is 4.0%, resulting in an all‑in rate of 8.5%. The swap continues at the fixed rate of 4.47% until November 2030. Prior to conversion of the Piedmont construction loan facility to a term loan, the notional amounts of the interest rate swap agreements matched the estimated outstanding principal balance of Piedmont’s construction loan facility. The interest rate swaps were executed on October 21, 2010 and November 2, 2010 and expire on February 29, 2016 and November 30, 2030, respectively. As a result of the Piedmont term loan conversion on February 14, 2014, these swap agreements were amended to reduce the notional amounts to match the outstanding $68.5 million principal of the term loan. The interest rate swap agreements are not designated as hedges, and changes in their fair market value are recorded in the consolidated statements of operations. The Cadillac project has an interest rate swap agreement that effectively fixes the interest rate at 6.0% through February 15, 2015, 6.1% from February 16, 2015 to February 15, 2019, 6.3% from February 16, 2019 to February 15, 2023, and 6.4% thereafter. The notional amount of the interest rate swap agreement matches the outstanding principal balance over the remaining life of Cadillac’s debt. This swap agreement, which qualifies for and is designated as a cash flow hedge, is effective through June 2025 and the effective portion of the changes in the fair market value is recorded in accumulated other comprehensive loss. Volume of forecasted transactions We have entered into derivative instruments in order to economically hedge the following notional volumes of forecasted transactions as summarized below, by type, excluding those derivatives that qualified for the NPNS exemption at September 30, 2016 and December 31, 2015:
|  |  |  | September 30, |  | December 31, |
|  | Units |  | 2016 |  | 2015 |
Natural gas swaps |  | Natural Gas (Mmbtu) |  | 4.7 |  | 2.8 |
Gas purchase agreements |  | Natural Gas (Gigajoules) |  | 17.2 |  | 25.0 |
Interest rate swaps |  | Interest (US$) |  | 520.4 |  | 302.3 |
Fair value of derivative instruments We have elected to disclose derivative instrument assets and liabilities on a trade‑by‑trade basis and do not offset amounts at the counterparty master agreement level. The following table summarizes the fair value of our derivative assets and liabilities:
|  | September 30, 2016 |
|  | Derivative |  | Derivative |
|  | Assets |  | Liabilities |
Derivative instruments designated as cash flow hedges: |  |  |  |  |  |  |
Interest rate swaps current |  | $ | — |  | $ | 0.9 |
Interest rate swaps long-term |  |  | — |  |  | 2.9 |
Total derivative instruments designated as cash flow hedges |  |  | — |  |  | 3.8 |
Derivative instruments not designated as cash flow hedges: |  |  |  |  |  |  |
Interest rate swaps current |  |  | — |  |  | 2.5 |
Interest rate swaps long-term |  |  | 0.8 |  |  | 10.7 |
Natural gas swaps current |  |  | 1.5 |  |  | 1.0 |
Natural gas swaps long-term |  |  | 0.5 |  |  | — |
Gas purchase agreements current |  |  | 0.1 |  |  | 10.8 |
Gas purchase agreements long-term |  |  | — |  |  | 13.7 |
Total derivative instruments not designated as cash flow hedges |  |  | 2.9 |  |  | 38.7 |
Total derivative instruments |  | $ | 2.9 |  | $ | 42.5 |
|  | December 31, 2015 |
|  | Derivative |  | Derivative |
|  | Assets |  | Liabilities |
Derivative instruments designated as cash flow hedges: |  |  |  |  |  |  |
Interest rate swaps current |  | $ | — |  | $ | 1.0 |
Interest rate swaps long-term |  |  | — |  |  | 2.7 |
Total derivative instruments designated as cash flow hedges |  |  | — |  |  | 3.7 |
Derivative instruments not designated as cash flow hedges: |  |  |  |  |  |  |
Interest rate swaps current |  |  | — |  |  | 2.0 |
Interest rate swaps long-term |  |  | 0.3 |  |  | 7.8 |
Natural gas swaps current |  |  | — |  |  | 5.0 |
Natural gas swaps long-term |  |  | — |  |  | — |
Gas purchase agreements current |  |  | — |  |  | 28.7 |
Gas purchase agreements long-term |  |  | — |  |  | 10.3 |
Total derivative instruments not designated as cash flow hedges |  |  | 0.3 |  |  | 53.8 |
Total derivative instruments |  | $ | 0.3 |  | $ | 57.5 |
Accumulated other comprehensive income The following table summarizes the changes in the accumulated other comprehensive income (loss) (“OCI”) balance attributable to derivative financial instruments designated as a hedge, net of tax:
|  | Interest Rate |
Three Months Ended September 30, 2016 |  | Swaps |
Accumulated OCI balance at June 30, 2016 |  | $ | (0.1) |
Change in fair value of cash flow hedges |  |  | 0.0 |
Realized from OCI during the period |  |  | 0.2 |
Accumulated OCI balance at September 30, 2016 |  | $ | 0.1 |
|  | Interest Rate |
Three Months Ended September 30, 2015 |  | Swaps |
Accumulated OCI balance at June 30, 2015 |  | $ | 0.1 |
Change in fair value of cash flow hedges |  |  | (0.4) |
Realized from OCI during the period |  |  | 0.2 |
Accumulated OCI balance at September 30, 2015 |  | $ | (0.1) |
|  | Interest Rate |
Nine Months Ended September 30, 2016 |  | Swaps |
Accumulated OCI balance at January 1, 2016 |  | $ | 0.2 |
Change in fair value of cash flow hedges |  |  | (0.6) |
Realized from OCI during the period |  |  | 0.5 |
Accumulated OCI balance at September 30, 2016 |  | $ | 0.1 |
|  | Interest Rate |
Nine Months Ended September 30, 2015 |  | Swaps |
Accumulated OCI balance at January 1, 2015 |  | $ | 0.1 |
Change in fair value of cash flow hedges |  |  | (0.8) |
Realized from OCI during the period |  |  | 0.6 |
Accumulated OCI balance at September 30, 2015 |  | $ | (0.1) |
Impact of derivative instruments on the consolidated statements of operations The following table summarizes realized loss (gain) for derivative instruments not designated as cash flow hedges:
|  | Classification of loss (gain) |  | Three Months Ended September 30, |  | Nine Months Ended September 30, |
|  | recognized in income |  | 2016 |  | 2015 |  | 2016 |  | 2015 |
Gas purchase agreements |  | Fuel |  | $ | 12.4 |  | $ | 11.8 |  |  | 36.4 |  | $ | 36.1 |
Natural gas swaps |  | Fuel |  |  | 0.6 |  |  | 1.5 |  |  | 4.0 |  |  | 4.3 |
Interest rate swaps |  | Interest, net |  |  | 1.0 |  |  | 0.5 |  |  | 2.7 |  |  | 1.7 |
The following table summarizes the unrealized loss (gain) resulting from changes in the fair value of derivative financial instruments that are not designated as cash flow hedges:
|  | Classification of gain (loss) |  | Three Months Ended September 30, |  | Nine Months Ended September 30, |
|  | recognized in income |  | 2016 |  | 2015 |  | 2016 |  | 2015 |
Natural gas swaps |  | Change in fair value of derivatives |  | $ | 0.2 |  | $ | (0.1) |  | $ | 6.0 |  | $ | 0.7 |
Gas purchase agreements |  | Change in fair value of derivatives |  |  | 5.6 |  |  | 6.1 |  |  | 16.8 |  |  | 11.6 |
Interest rate swaps |  | Change in fair value of derivatives |  |  | 3.2 |  |  | (2.4) |  |  | (2.8) |  |  | (3.6) |
|  |  |  | $ | 9.0 |  | $ | 3.6 |  | $ | 20.0 |  | $ | 8.7 |

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