9. Derivatives

We are exposed to market risks associated with changes in the variable interest rate of the Partnership Credit Facility. We use derivative instruments to manage our exposure to fluctuations in this variable interest rate and thereby minimize the risks and costs associated with financial activities. We do not use derivative instruments for trading or other speculative purposes.

At September 30, 2018, the Partnership was a party to the following interest rate swaps, which were entered into to offset changes in expected cash flows due to fluctuations in the associated variable interest rates (in millions):



Expiration Date	Notional Value
May 2019	$	100.0
May 2020	100.0
March 2022	300.0
	$	500.0

The counterparties to the derivative agreements are major financial institutions. We monitor the credit quality of these financial institutions and do not expect non-performance by any counterparty, although such non-performance could have a material adverse effect on us. The Partnership has no specific collateral posted for its derivative instruments.

We have designated these interest rate swaps as cash flow hedging instruments and so any change in their fair value is recognized as a component of other comprehensive income (loss) until the hedged transaction affects earnings. At that time, amounts are reclassified into earnings to interest expense, the same statement of operations line item to which the earnings effect of the hedged item is recorded. Cash flows from derivatives designated as hedges are classified in our condensed consolidated statements of cash flows under the same category as the cash flows from the underlying assets, liabilities or anticipated transactions, unless the derivative contract contains a significant financing element; in this case, the cash settlements for these derivatives are classified as cash flows from financing activities.

We expect the hedging relationship to be highly effective as the swap terms substantially coincide with the hedged item and are expected to offset changes in expected cash flows due to fluctuations in the variable rate. Prior to adoption of ASU 2017-12, we performed quarterly calculations to determine whether the swap agreements continued to be highly effective at achieving offsetting changes in cash flows attributable to the hedged risk. Upon adoption of ASU 2017-12, we perform quarterly qualitative prospective and retrospective hedge effectiveness assessments unless facts and circumstances related to the hedging relationships change such that we can no longer assert qualitatively that the cash flow hedge relationships were and continue to be highly effective. We estimate that $3.6 million of the deferred pre-tax gain attributable to interest rate swaps included in accumulated other comprehensive income (loss) at September 30, 2018 will be reclassified into earnings as interest income at then-current values during the next twelve months as the underlying hedged transactions occur.

In August 2017, the Partnership amended the terms of $300.0 million of its interest rate swap agreements to adjust the fixed interest rate and extend the maturity dates to March 2022. These amendments effectively created new derivative contracts and terminated the old derivative contracts. As a result, as of the amendment date, we discontinued the original cash flow hedge relationships on a prospective basis and designated the amended interest rate swaps under new cash flow hedge relationships based on the amended terms. The fair value of the interest rate swaps immediately prior to the execution of the amendments was a liability of $0.7 million. The associated amount in accumulated other comprehensive income (loss) was amortized into interest expense over the original terms of the interest rate swaps through May 2018.

As of September 30, 2018, the weighted average effective fixed interest rate on the interest rate swaps was 1.8%.

The following tables present the effect of the derivative instruments designated as cash flow hedging instruments on our condensed consolidated balance sheets (in thousands):



	Fair Value Asset (Liability)
	September 30, 2018		December 31, 2017
Other current assets	$	3,592	$	186
Other long-term assets	9,487		4,490
Accrued liabilities	—		(134		)
	$	13,079	$	4,542

The following tables present the effect of the derivative instruments designated as cash flow hedging instruments on our condensed consolidated statements of operations (in thousands):



	Three Months Ended September 30,					Nine Months Ended September 30,
	2018		2017			2018			2017
Pre-tax gain recognized in other comprehensive income (loss)	$	1,642	$	1,919		$	8,583		$	2,282
Pre-tax gain (loss) reclassified from accumulated other comprehensive income (loss) into interest expense	429		(678		)	(83		)	(2,521		)



	Three Months Ended September 30, 2018		Nine Months Ended September 30, 2018
Total amount of interest expense in which the effects of cash flow hedges are recorded	$	23,518	$	69,402
Amount of gain reclassified from accumulated other comprehensive income (loss) into interest expense	429		582

See Note 18 (“Accumulated Other Comprehensive Income”) for further details on the derivative instruments.