v3.20.1

Accounting for derivative instruments and hedging activities | 3 Months Ended
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Mar. 31, 2020
Accounting for derivative instruments and hedging activities |
Accounting for derivative instruments and hedging activities | 7. 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 and sale agreements We have a gas purchase agreement at our Nipigon project that expires on December 31, 2022 under which we purchase a minimum of 6,500 Gigajoules (“Gj”) of natural gas per day at a price of Cdn$4.57 per Gj. This agreement does not qualify for the normal purchase normal sales (“NPNS”) exemption and is accounted for as a derivative financial instrument because we could not conclude that it is probable that this contract will not settle net and will result in physical delivery. This derivative financial instrument is recorded in the condensed consolidated balance sheets at fair value and the changes in its fair market value are recorded in the condensed consolidated statements of operations. We also have a corresponding gas sales agreement at Nipigon, whereby 6,500 Gj of natural gas per day is sold at the spot market price. This contract is not accounted for as a derivative. 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 condensed consolidated balance sheets at fair value and the changes in their fair market value are recorded in the condensed consolidated statements of operations. We have entered into various natural gas swaps to effectively fix the price of 15.4 million Mmbtu of future natural gas purchases at our Orlando project, which is approximately 100% of our share of the expected natural gas purchases in 2020 through 2023. These contracts are accounted for as derivative financial instruments and are recorded in the condensed consolidated balance sheet at fair value at March 31, 2020. Changes in the fair market value of these contracts are recorded in the condensed consolidated statement of operations. Interest rate swaps APLP Holdings has entered into several interest rate swap agreements to mitigate its exposure to changes in interest at the Adjusted Eurodollar Rate. At March 31, 2020, these agreements totaled $3 29.4 million notional amount of the remaining $360 million aggregate principal amount of borrowings under the senior secured term loan facility (“Term Loan Facility”). These interest rate swap agreements expire at various dates through March 31, 2022. Borrowings under the $700.0 million Term Loan Facility bear interest at a rate equal to the Adjusted Eurodollar Rate plus an applicable margin of 2.50%. Based on the terms of the Term Loan Facility, the Adjusted Eurodollar Rate cannot be less than 1.00%, resulting in a minimum of a 3.50% all-in rate on the Term Loan Facility for the non-swapped portion of the remaining principal amount. The weighted average rate of these swap agreements is 2.03%, resulting in an all-in rate of approximately 4.53% for $360.0 million of the Term Loan Facility. In February 2020, APLP Holdings entered into additional interest rate swap agreements. For the period beginning March 31, 2020 through December 31, 2021, we mitigated exposure to changes in interest rates a one-month LIBOR fixed rate of 1.39%. The notional amount of these interest rate swap agreements range between $3.1 million and $100.0 million and are sized to the targeted debt balance payments over that period. The Cadillac project has an interest rate swap agreement that effectively fixes the interest rate at 6.3% through 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 the Cadillac Term Loan. 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 income (loss). Foreign currency forward contracts We use foreign currency forward contracts to manage our exposure to changes in foreign exchange rates as we generate cash flow in U.S. dollars and Canadian dollars. We currently have Canadian dollar payment obligations for preferred dividends, interest on our Canadian dollar-denominated convertible debentures and our Medium Term Notes due June 23, 2036 (“MTNs”). Principal and interest payments for our senior secured term loans are made in U.S. dollars. We have a hedging strategy for the purpose of mitigating the currency risk impact on the future interest and principal payments, preferred dividends and other working capital requirements. Foreign currency forward contracts are not designated as hedges, and changes in their market value are recorded in foreign exchange on the condensed consolidated statements of operations. As of March 31, 2020, we have no foreign currency forward contracts. 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 NPNS exemption at March 31, 2020 and December 31, 2019:
|  |  |  | March 31, |  | December 31, |
|  | Units |  | 2020 |  | 2019 |
Natural gas swaps |  | Natural Gas (MMbtu) |  | 15.4 |  | 16.3 |
Gas purchase agreements |  | Natural Gas (Gigajoules) |  | 6.5 |  | 6.4 |
Interest rate swaps |  | Interest (US$) |  | 346.6 |  | 468.4 |
Fair value of derivative instruments We 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:
|  | March 31, 2020 |
|  | Derivative |  | Derivative |
|  | Assets |  | Liabilities |
Derivative instruments designated as cash flow hedges: |  |  |  |  |  |  |
Interest rate swaps current |  | $ | — |  | $ | 0.6 |
Interest rate swaps long-term |  |  | — |  |  | 1.3 |
Total derivative instruments designated as cash flow hedges |  |  | — |  |  | 1.9 |
Derivative instruments not designated as cash flow hedges: |  |  |  |  |  |  |
Interest rate swaps current |  |  | — |  |  | 5.2 |
Interest rate swaps long-term |  |  | — |  |  | 3.9 |
Natural gas swaps current |  |  | — |  |  | 2.4 |
Natural gas swaps long-term |  |  | — |  |  | 4.2 |
Gas purchase agreements current |  |  | — |  |  | 4.2 |
Gas purchase agreements long-term |  |  | — |  |  | 7.1 |
Convertible debenture conversion option |  |  | — |  |  | 5.6 |
Total derivative instruments not designated as cash flow hedges |  |  | — |  |  | 32.6 |
Total derivative instruments |  | $ | — |  | $ | 34.5 |
|  | December 31, 2019 |
|  | Derivative |  | Derivative |
|  | Assets |  | Liabilities |
Derivative instruments designated as cash flow hedges: |  |  |  |  |  |  |
Interest rate swaps current |  | $ | — |  | $ | 0.4 |
Interest rate swaps long-term |  |  | — |  |  | 1.1 |
Total derivative instruments designated as cash flow hedges |  |  | — |  |  | 1.5 |
Derivative instruments not designated as cash flow hedges: |  |  |  |  |  |  |
Interest rate swaps current |  |  |  |  |  | 1.9 |
Interest rate swaps long-term |  |  | — |  |  | 1.1 |
Natural gas swaps current |  |  | — |  |  | 1.9 |
Natural gas swaps long-term |  |  | — |  |  | 4.2 |
Gas purchase agreements current |  |  | 0.7 |  |  | 4.6 |
Gas purchase agreements long-term |  |  | — |  |  | 9.5 |
Convertible debenture conversion option |  |  | — |  |  | 3.2 |
Total derivative instruments not designated as cash flow hedges |  |  | 0.7 |  |  | 26.4 |
Total derivative instruments |  | $ | 0.7 |  | $ | 27.9 |
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 March 31, 2020 |  | Swaps
Accumulated OCI balance at January 1, 2020 |  | $ | 1.6
Change in fair value of cash flow hedges |  |  | (0.4)
Realized from OCI during the period |  |  | 0.1
Accumulated OCI balance at March 31, 2020 |  | $ | 1.3
|  | Interest Rate
Three Months Ended March 31, 2019 |  | Swaps
Accumulated OCI balance at January 1, 2019 |  | $ | 1.6
Change in fair value of cash flow hedges |  |  | (0.2)
Realized from OCI during the period |  |  | 0.1
Accumulated OCI balance at March 31, 2019 |  | $ | 1.5
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 March 31,
|  | recognized in income |  | 2020 |  | 2019
Gas purchase agreements |  | Fuel |  | $ | 2.2 |  | $ | 2.0
Natural gas swaps |  | Fuel |  |  | 0.7 |  |  | (0.3)
Interest rate swaps |  | Interest, net |  |  | 0.3 |  |  | (1.3)
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 (loss) gain |  |  | Three Months Ended March 31, |  |
|  | recognized in income |  |  | 2020 |  | 2019 |  |
Natural gas swaps |  | Change in fair value of derivatives |  |  | $ | (0.5) |  | $ | 0.2 |  |
Gas purchase agreements |  | Change in fair value of derivatives |  |  |  | 1.0 |  |  | (0.4) |  |
Interest rate swaps |  | Change in fair value of derivatives |  |  |  | (6.1) |  |  | (2.2) |  |
|  |  |  |  |  | (5.6) |  |  | (2.4) |  |
Convertible debenture conversion option |  | Other expense (income), net |  |  | $ | 2.6 |  |  | 4.7 |  |
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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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